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If the Dutch Tax and Customs Administration considers you to be an entrepreneur for income tax purposes, you will pay income tax on your business's profit. Various criteria apply to this process. For instance, if your activities are conducted in an economic setting, if you can expect to make a profit, if you work independently and at your own risk, you are probably considered to be an entrepreneur in terms of income tax.
Entrepreneur for income tax purposes
When you register your business with the Chamber of Commerce (KVK), the Dutch Tax and Customs Administration will assess whether you fulfil the requirements. For income tax purposes, income is divided into 3 groups (which are called 'boxes'), each with its own rate:
- Box 1: taxable income on wages and property.
- Box 2: taxable income from a substantial business interest.
- Box 3: taxable income from savings and investments.
Your business's profit is part of your 'income from wages and property' (box 1).
Health care insurance premium
Entrepreneurs and freelancers also have to pay an income-dependent contribution for health care insurance to the national government. This contribution is on top of the premium that you pay to your health care insurer of your choice. The higher your income, the higher your contribution will be. You pay the contribution by means of a tax return. You may be eligible for an allowance towards the costs, known as ‘health care allowance’ (zorgtoeslag).
File your return
As an independent business person, you must file your return digitally before 1 May of each year either via the Dutch Tax and Customs Administration's website, by using tax return or accounts software or via a tax intermediary. If you employ people, you must make sure they receive their annual income statement in time so they can file their private tax return before 1 April as well.
Prinsjesdag (Budget Day) 2019 announcements
On Prinsjesdag (Budget Day) 2019, the Ministry of Finance announced the following measures:
- It will no longer be possible to deduct administrative fines from your income tax or corporate income tax. As an employer, you will no longer be allowed to deduct compensation you give your employees for administrative fines.
- The ministry also announced an increase in general tax credit (arbeidskorting) from 2020 through 2022. The increase means that employees and employers who are liable for income tax and have an income of between €10,000 and €98,000 will pay less income tax. The measure also means that employees who earn between €20,000 and €35,000 will take home more pay if they decide to work longer hours.
- The introduction of the simplification of the tax system is to be accelerated. In 2020 there will be just 2 tax brackets, a year earlier than expected. At present there are 3 tax brackets. As a result of the accelerated introduction of the new tax system, the spending power will increase of everyone who earns more than €40,000 a year.
- The general levy rebate for income tax is to increase in stages in 2019, 2020 and 2021. This means that everyone with an income of €68,507 or less will pay less income tax and lower national insurance premiums.
The changes in law are due to come into effect on 1 January 2020. This is subject to their acceptance by the upper and lower houses of parliament.
Previously proposed changes to income tax
As part of the Tax Plan 2019, announced in the Prinsjesdag 2018 (Budget Day) proposals the following changes to income tax were announced:
- In the current income tax box 1, the 4 tax brackets will be replaced by 2 tax brackets by 2021. The second and third brackets will be harmonised starting 2019.
- From 2020 onwards, the maximum tariff for deductible costs for entrepreneurs will be phased out. The purpose of this measure is to reduce the tax differences between entrepreneurs and employees.
- Individuals with a substantial interest (i.e. more than 5% of the shares in a public or private limited company) will see taxation on the income from these shares (box 2) increase from 25 to 26.9% in 2021.