Business in The Netherlands – Part 2
Business in The Netherlands – Part 2.
Whether as a foreign company or a private individual, you may be toying with the idea of starting a business in the Netherlands. This is the second article of a series of three articles that will discuss the possibilities open to you.
This first article examined starting up a new business or Dutch branch of your existing business, including indicating which tax obligations apply. This article will focus on the aspects of starting a business as self-employed contractor with no staff.
Starting as an independent contractor/freelancer
For a budding entrepreneur beginning as an independent contractor or freelancer is one of the easiest ways to begin. A freelancer in principle performs work for different clients on a contract basis. A freelancer therefore works on assignment from the client, rather than being employed.
The absence of an employment agreement is very important in terms of tax. If you are self-employed, then a client does not have to withhold payroll tax and social premiums when they make payment to you.
Entrepreneur or employee?
As a freelancer you run the risk of so-called disguised employment. Your situation is very much like that of a paid employee. Both you and your client may eventually face hefty costs such as payroll tax and social contributions.
Avoid problems: request a Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR)
Before doing business clients often want proof that they are actually dealing with an independent contractor. For this reason it is a good idea to request a Declaration of Independent Contractor Status (VAR) from the tax authorities. In this the tax authorities state their assessment of your situation and if they consider your activities to be employment in the usual sense or contracting.
Tips for contractors and freelancers
• For self-employed and freelancers the same rules apply as for other businesses, such as compulsory registration with the Chamber of Commerce.
• Freelancing and independent contracting are not types of legal entities. Many contractors and freelancers choose the business form of sole trader or company.
• Contractors and freelancers are eligible for a number of beneficial tax schemes as long as they spend at least 1225 hours per year (24 hours per week) on their business.
Contractors and freelancers are eligible for a number of tax deductions, meaning you can deduct an amount from your profits thereby reducing your tax payable. But you are only eligible for the deductions if you are not liable for company tax.
Summary of tax deductions:
Below is a summary of the most common tax deductions. Take note of the conditions attached to the deductions.
From 2012 the self-employment deduction is a fixed amount of € 7,280.00. Conditions:
• You practice a business or profession independently.
• You fulfill the minimum hours condition.
An extra deduction for new business starters, in addition to the self-employment deduction. Conditions:
• You are entitled to the self-employment deduction,
• This has only been used up to a maximum of 2 times in the last 5 years,
• And you did not have a business for at least one of the last 5 years.
If your partner has contributed to your business without any payment, then you may deduct an amount from your profits. The amount depends on the amount of profit and the total number of hours that your partner contributed. The condition is that you fulfill the hours condition.
Fiscal retirement reserve
You can set aside money for your retirement. You don’t have to pay tax over this for now. You may use a maximum of 12% for your fiscal retirement reserve, but there is a maximum amount. The condition is that you are under 65 years old.
Assets which you have bought for your startup business may be depreciated ‘arbitrarily’. You can decide yourself how much you depreciate. Conditions:
• You have a sole-tradership, partnership or company.
• You are entitled to the starter’s deduction. Additional conditions can be found on the website of the tax office (Belastingdienst).
SME profit exemption
Another deduction is that you do not have to pay tax over 14% of your profit. This is the profit after the other deductions have been calculated, such as the self-employment deduction. Note: In 2012 the SME profit exemption was still 12%. If you are doing your tax return over the 2012 year you must use the 12% rate.
Starting as a freelancer has many fiscal benefits, particularly with regard to tax deductions. It is important to consider all the circumstances specific to your situation. As such, it is best to consult a tax adviser who knows all the ins and outs of the business. You could view our services here.