Deductible expenditure for entrepreneurs in 2020

Retirement reserve

It will be permissible for entrepreneurs in 2020 to add 9.44 percent of their business profit to the retirement reserve, to a maximum of 9,218 euros overall. The addition is to be reduced by pension premiums having been charged to the profit.

Entrepreneur’s allowance

The “hours test” requires the entrepreneur annually to devote at least 1,225 hours accounting for half or more of his or her working hours to his or her business. Compliance with this criterion will qualify the business owner to entrepreneur’s allowance in the following composition:

• self-employed person’s relief,
• relief in connection with R&D activities;
• partner’s relief,
• new business relief for the occupationally disabled,
• business discontinuation relief.

The 2020 level of tax relief for the self-employed has been reduced to 7,030 euros while the tax relief in connection with work of an R&D nature has been fixed at 12,980 euros. Entitlement to increased relief, in the amount of 6,494 euros extra, for work of an R&D nature accrues to those who have lacked entrepreneurial status during any of the five previous calendar years and have made use of R&D relief no more than twice during said period. The remaining entrepreneur’s allowance amounts have remained unchanged. The entrepreneur’s allowance in the top income tax bracket is effected at a reduced rate of 46 percent rather than at the graded tax rate, which stands at 49.5 percent. 

Hybrid expenditure

The category of “hybrid expenditure” comprises expenses some of which relate to the business whereas others are incurred in a private capacity. The deductibility from the profit of expenses of this nature is subject to limitations. 80 percent deductibility applies to the following types of expenditure:

• expenses relating to (luxury) food and beverages,
• entertainment expenses including with respect to receptions, festivities and performances,
• expenses relating to conferences, seminars, symposiums, excursions, study trips and the like.

The entrepreneur has the option of excluding 20 percent of actually incurred hybrid expenses for deductibility purposes, or he or she may prefer to deduct all expenses in exchange for increasing the business’ profit by a fixed amount of 4,700 euros.

SME profit exemption

This year’s SME profit exemption for entrepreneurs has remained unchanged from the previous year, at 14 percent of the business’ profit.

Dutch version: Aftrekposten voor ondernemers in 2020