Tax essentials for starters

Did you recently register your business at KVK? Or are you about to do so? As a starting business you will have to deal with taxes. What is the difference between turnover tax and income tax? And which deductibles and allowances can a starting business make use of? Use this article to help find your way. It features a calculation example for income tax, so you can estimate how much money to set aside for taxes. Then you will know what to expect when you file your VAT and income tax returns.

Hours criterion

The Dutch government uses tax allowances to stimulate entrepreneurship. It means you pay fewer taxes. The private business ownership allowance is an example of one such scheme. Are you eligible for deductibles? If the Tax Administration regards you an 'entrepreneur for income tax', you probably are. To meet the hours criterion you spend at least 1,225 hours per year on your business – some 24 hours per week. The hours criterion applies to most schemes under the entrepreneur allowance, but not for the SME exemption.

What is turnover tax (VAT)?

If the Tax and Customs Administration sees you as an entrepreneur, you have to file VAT returns (‘btw-aangifte’). Most entrepreneurs have to file every 3 months. You have 1 month after the end of the quarter to do so. So, if you need to file your VAT return for the first quarter of a year, the deadline for filing – and paying – is 30 April.

The Netherlands works with 3 VAT tariffs: 21%, 9%, and 0%. As an entrepreneur, you are obliged to levy VAT on the goods or services you provide. The standard tariff is 21%, also called the high tariff. This tariff applies to most entrepreneurs. 

The 9% applies to a limited number of services: hairdressers and shoemakers, for instance. Check the Tax Administration website (in Dutch).

The 0% VAT tariff applies when you provide goods or services internationally, within the EU. If you export products to a business client in another EU country, you use the 0% VAT tariff. Your client then pays the local VAT, not the Dutch VAT. 

Some professions are exempt from VAT. Examples are physical therapists, nurses, and childcarers. If you practice one of these professions, you do not charge VAT. Nor can you deduct the VAT you have paid.

Tip: did you make business expenses before you registered with KVK? You may deduct the VAT and costs that you made up to 3 months prior to your registration from your VAT and income tax. So hang on to your receipts

Example of a VAT return

Nora is a pedicurist. She purchases footcare products and gives treatments.

She spends €300 on stock purchases. She pays €63 in VAT (21% of 300). Including VAT, Nora has spent €363 on inventory.

She has given 20 treatments at €25, in total €500, VAT excluded. VAT included, she charges her customers €30.25. Her turnover is €605. That means she has received €105 in VAT (€605 - €500).

In her VAT return, she lists these amounts:

VAT return	Amount
VAT paid	€ 63
VAT received	€ 105
VAT due	€ 42

What is income tax?

Turnover is the money you make. You deduct the costs you make for your business from that. What is left is the gross profit. You have to pay income tax on your gross profit. If you make more profit, you pay more tax. Income tax is calculated after the book year has ended.

This article features a fictitious calculation example of an income tax return for a self-employed professional without staff (zzp’er). Do you want to calculate how much income tax you have to pay? Use the 'rekentool inkomstenbelasting' (calculation tool income tax, in Dutch). The tool shows you how the new tax tariffs affect your income. It is important to put aside money for this.

The income tax for 2022 is based on 2 boxes. Until you reach the state pension age, these tariffs apply:

• Box 1
  37.07% over the taxable income up to €69,399
• Box 2
  49.5% over everything you earn over €69,399

Consider these fiscal deductibles

Private business ownership allowance

The private business ownership allowance, tax relief for new companies, and SME profit exemption are fiscal schemes. You may be eligible for these if your business is a sole proprietorship, a general partnership (vof), or a professional partnership (‘maatschap’). Other conditions are your independence and the risk you incur as an entrepreneur. To make sure, you can use the Tax Administration tool OndernemersCheck (in Dutch).

You can make use of the private business ownership allowance if you meet the hours criterion. Have you been an entrepreneur for more than 5 years? In that case, you must spend more time on your business than on other activities, such as working as an employee. For 2022, the private business ownership allowance is €6,310. You may deduct this amount from your profit. 

Do you receive a state pension (AOW)? In that case, the private business ownership allowance is reducted by 50%.

Private business ownership allowance phased out

The private business ownership allowance is being phased out over the coming years. You may deduct less from your profit each year. In 2023 it will be reduced to €5300. It will be reduced every year until it is €900 in 2027. On the other hand, the general tax credit will be increased.

Tax relief for new companies

If you are eligible for the private business ownership allowance, you are also eligible for the tax relief for new companies scheme. You may deduct an extra amount of €2,123 from your profit in your income tax return. You may do so 3 times in the first 5 years after starting your business.

SME profit exemption

You are entitled to the SME profit exemption if your business is a sole proprietorship, a vof, or a professional partnership, and you are an entrepreneur for income tax. It does not matter if you have spent 1,225 hours on your business. The SME profit exemption is deducted from your profit after you have deducted the private business ownership allowance and the tax relief for new companies. It amounts to 14% of the remaining profit.

An example of an income tax return

Karim is a zzp’er. He has been registered at KVK as a sole proprietor since 2019. He is an interior decorator. Karim has spent more than 1,600 hours on his business. His hourly rate is €50, and he has made 900 billable hours. Billable hours are hours Karim can charge his clients for services rendered. This is an example of his profit calculation and the amount of income tax he will have to pay.

What is the income-dependent health insurance contribution?

Besides the monthly health insurance premium, you also pay an income-dependent health insurance contribution of 5.5% in 2022. The premium is calculated over your business' taxable profit. Taxable profit is calculated like this: Profit from business - private business ownership allowance - tax relief for new companies - SME profit exemption = taxable profit.

If you are in paid employment, the income-dependent contribution is paid by your employer. If you are a self-employed professional without staff, you pay this contribution yourself. The Tax Administration will send you an assessment. This amount is not included in the example in this article.

What is a provisional assessment?

If you have filed an income tax return over 2021, the Tax Administration can estimate how much turnover you will have in 2022, and how much income tax you will have to pay. A provisional assessment means you pay your income tax and health insurance contribution in instalments. The advantage: you will not have to pay the full amount in one go.

Is the small businesses scheme (KOR) right for your business?

Is your turnover less than €20,000 per calendar year? Or has it decreased to less than €20,000? Consider using the small businesses scheme, the KOR.

You can apply for the KOR if your annual turnover does not exceed € 20,000 (VAT excluded), and if the Tax Administration regards you as an entrepreneur for VAT. Do you want to make use of the KOR? Apply to the Tax Administration. You do so for a period of at least 3 years. You can only stop using the KOR during that period if your annual turnover exceeds €20,000.

After you have registered your business, you must always file a first VAT return over the first ensuing quarter. You can make use of the KOR starting the quarter after that. Example: you register on 1 January. You have to file a VAT return before 30 April. You can apply for the KOR for the second quarter. Be sure to apply in time.

Learn more in this tax webinar

The Dutch Tax Administration hosts a monthly webinar on taxes, especially for starting companies. This free webinar is in Dutch. You can apply for it via this link. Or you can watch the Business.gov.nl webinar 'Taxes for entrepreneurs in the Netherlands'.