Artists: entrepreneurs ‘in paid employment’
Because the Dutch tax system has several ways for managing income regarding artists, the question arises; Which form suits you best? There are various perspectives; as a self-employed professional, in paid employment or a combination of both. This question, however, cannot be answered definitively. Each form has its advantages and disadvantages. Ultimately, it is up to the artist which form to choose. This text will explain the fiscal regulations for each form.
1. Artist in paid employment
Just like a regular employee, an artist can be employed by an employer. In this case, we can speak of genuine employment. genuine employment has the following features:
The employee is obligated to work for the employer;
The employer is obligated to pay wages to the employee for his/her related work;
There is a relationship of authority between the employee and the employer.
The law, however, has special rules for artists. If an artist performs activities for a short duration, about 3 months or shorter, then the artist arrangement applies.
1.1 Artist arrangement
Because artists adopt a slightly different position than regular employees, the government created the artist arrangement. The artist arrangement is only applicable for short term employments of about 3 months and shorter, this includes one-time performances. On the basis of this arrangement, artists fall under the payroll tax regulation. This is somewhat peculiar considering that artists are not employees, but self-employed professionals. In this case we can speak of a fictitious employment. They fall under the payroll tax regulation and the accompanying social securities, despite them being self-employed professionals. The artist arrangement is a very tricky and complicated arrangement that brings along a lot of administrative burdens for the client. The client has to apply to the tax authorities, determine the identity of the artist, fill in a declaration of fees and a tax return and supply an annual statement. So, very tricky and annoying.
The artist arrangement does provide some advantages. Those are the small compensation arrangement and the expenses compensation arrangement. For a more expansive explanation of the arrangements, click here.
However, there are a few situations where the artist arrangement does not apply:
The artist performs his activities on the basis of a Declaration of Independent Contractor Status profit from enterprise (VAR WUO);
-A withholding statement;
-Agreements of longer than three months
-The artist performs for a natural person at one of his/her personal social affairs (e.g. weddings, birthdays etc.)
The first three exceptions are explained further
2. Artist as a self-employed professional
We can speak of this form if the artist performs his activities as a self-employed professional. The artist bills the client for his/her fee and possible expenses including VAT.
Before the artist can bill clients, he/she needs to possess a VAR-WUO. This VAR he/she receives after applying for it at the tax authorities gives the client the security of not having to withhold and pay for payroll tax. This is due to the fact that the artist operates as a self-employed professional and therefore does not need to be paid wages for his/her work.
2.1 VAR WUO (Declaration of Independent Contractor Status profit from enterprise)
Before the tax authorities issues a VAR WUO it is essential that you are considered to be a self-employed professional. The tax authorities pay attention to, among others, the following criteria:
-Not working in a relationship of authority
-Risk of unfulfilled payment obligations
-Insecurity regarding future income
-It is apparent that not everyone who sees themselves as an entrepreneur, is considered an entrepreneur in the eyes of the tax authorities.
2.2 advantages and disadvantages
If an artist receives profit for enterprise, he needs to declare these incomes in his report income taxes. In this, the artist can deduct his own business expenses (travel expenses, clothing, business dinners, accountancy expenses). Another advantage is that the artist is eligible for various entrepreneur facilities such as the start-up deduction, investment deduction, self-employed professional deduction and SME-profit exemption. For this the artist will owe less taxes.
For the client it is also very beneficial that he does not have to pay wages to the artist, because of added employer expenses. However there are also disadvantages to operating as a self-employed professional.
Because there is no premium paid into employee insurances, you are not insured for loss of income regarding sickness, incapacity to work or unemployment. Neither can you receive benefits.
3. Declaration of withholding (Inhoudingsplichtigen verklaring, IPV)
The artist arrangement is also not applicable in regards to an IPV. The obligation of deducting and paying payroll taxes and premiums employee insurances is transferred to the owner of the declaration. Payroll agencies make frequent use of this declaration.
With the use of the an IPV clients can be billed. They do not have to deduct payroll taxes and social premiums. This is a huge advantage. However, payroll agencies do request a percentage for their work. This percentage can turn out to be quite high, making this form less attractive.
4. Opting-in (pseudo-employee) and agreements extending three months.
What if an artist cannot be considered as a self-employed professional and neither can we speak of a genuine or fictitious employment?
In these cases the artist, together with the client, can choose to consider the working relation as an employment. Hence the word pseudo-employee. In this case there isn’t an employment, but the normal regulations still apply for the payroll taxes/premium national insurances. If you choose for opting-in the tax authorities need to be notified.
NB: This arrangement does not apply for employee insurance schemes. For possible sickness or incapacity to work you or the employee can insure privately.
If you do not have a short term agreement, then the client does not need to deduct payroll taxes. You will need to pay income taxes over the received amount from the contract. In this case you can also choose for opting-in.