You may call yourself a self-employed professional, a freelancer, or a small business owner. But what qualifies you as an entrepreneur in the eyes of the Dutch Tax and Customs Administration? What is the difference between being an entrepreneur for income tax and for VAT purposes? And when does the Netherlands Chamber of Commerce regard you as an entrepreneur? None of the abovementioned terms: self-employed professional, freelancer, small business owner, or even entrepreneur, is a legal form. It is important to know if you are considered an entrepreneur or not: you may have obligations, but also be entitled to financial advantages you are not aware of.
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Entrepreneur for income tax purposesWhen you provide products or services for payment, and can expect to make a profit, you may be an entrepreneur for income tax purposes. You do not qualify as such if you deploy activities as a hobby, or within your family. Once you have filed your tax return, the Dutch Tax and Customs Administration will determine whether your income is ‘profit from business activities’, and if you meet the characteristics of entrepreneurship. Criteria to determine this are, for instance:
- independence. Are you in charge of how you arrange your work? Do you determine your prices? Do you use your own materials, tools or equipment?
- business risk. Are you liable for your business debts? Do you run a financial risk, if your business does not go well?
- continuïty. Do you invest time and money in the acquisition of new customers? Do you have enough funds to run your business for some time?
- business size. Do you have multiple clients? What is your average yearly turnover?
Different criteria for entrepreneurship and Employment Relations Act (DBA)You can be an entrepreneur for income tax purposes even though you are under employment for certain assignments. The criteria to determine if you are an entrepreneur for income tax purposes differ from the criteria set for the Employment Relations Act. To determine if you are an entrepreneur for income tax, the entire picture is taken into account: how you work, and all your assignments in a year. The Employment Relation Act (DBA) considers the employment relation between the party giving the assignment and the party executing it. The main question is: is there an employment situation, where the employer has to deduct and pay payroll taxes?
Check if you are eligible for deductions and allowancesIf you are an entrepreneur for income tax purposes, you can use special arrangements. For instance: the entrepreneur allowance , the SME profit exemption , the private business ownership allowance , and the small projects investment credit (KIA) . Be aware that you can only benefit from these schemes if you also meet the time criterion: that is, if you spend at least 1225 hours a year on your business.
Not an entrepreneur, but enjoying resultsIf you provide products or services against payment, and you can expect a profit, but the Dutch Tax and Customs Administration does not regard you as an entrepreneur, you are ‘enjoying results’. Your income counts as ‘earnings from other activities’. If you are enjoying results, you cannot claim any of the special tax arrangements for entrepreneurs for income tax. You are allowed to deduct the costs you incur for your activities from your profit. And you may still be an entrepreneur for VAT purposes.
Entrepreneur for VAT purposesTo assess whether or not you are an entrepreneur for VAT purposes, the Dutch Tax and Customs Administration considers the following points:
- Do you practice a profession or run a business independently?
- Do you have regular income?
- Do you have income and a job?
- Are you trying to earn money from an entitlement or assets, like savings, investments or a house or holiday let?
Are you eligible for the Small Businesses Scheme?
If the amount of VAT you have to pay yearly is less than €1,883, you may be eligible for the Small Businesses Scheme (kleineondernemersregeling or KOR in Dutch). Other conditions are that you must be a natural person (so not a legal personality), resident in the Netherlands, and are able to prove you don’t have to pay more than €1,833 (in other words, have your business records in order). If you are eligible, you will have to pay less or no VAT (you can also claim a refund).
New Small Businesses Scheme per 1 January 2020
As of 1 January 2020, there is a new Small Businesses Scheme (KOR) in place. Entrepreneurs with an annual turnover that does not exceed €20,000.- can participate in the new KOR. To participate in the new small businesses scheme, you have to apply by filling in a form and send it to the Tax Administration. You can participate starting 1 January 2020, if your application reached the Tax Administration before or on 20 November.
The first opportunity after that is 1 April 2020. To apply for the new KOR, you must fill in the form and send it to the Tax Administration 4 weeks before the start of your next filing period. So, if you want to start participating on 1 April 2020, your application form has to be at the Tax Administration office no later than on 3 March 2020.
Are you exempt from administrative VAT requirements? Then you participate automatically from 1 January 2020. If you want to stop participating, you must notify the Tax Administration. You can do so at any time.
Characteristics of entrepreneurship by the Netherlands Chamber of CommerceThe Netherlands Chamber of Commerce uses three criteria to determine whether you are an entrepreneur:
- you provide products or services;
- you charge a more than nominal/symbolic fee for this;
- you participate in the (normal) economic traffic.