Five things you need to know as a freelancer

The five things you need to know:

1. Income tax system

2. VAT or BTW

3. VAR (verklaring arbeidsrelatie)

4. Specific company income tax deductions

5. Deductible expenses

1. Income tax system

Explanation of the tax structure In the Dutch income tax, three types of taxable income are distinguished. These income types are classified into 3 so-called boxes: - Box 1: taxable income from employment and home ownership - Box 2: taxable income from a substantial interest - Box 3: taxable income from savings and investments In general, every type of income falls into a particular box. So you do not have to worry whether your income is taxed twice in two different boxes. Box 1 Income from employment and home ownership Box 1 is the box where the most types of income are taxed. The following types of income are taxed in Box 1: wages, pension payments, social benefits, income from other activities (revenues from freelance activities or for instance fees for (guest) lectures) , your company car, profits from business activities, owner-occupied property, negative expenditure on income insurance, negative personal allowance, periodic benefits. Wages, pension payments and social benefits The employer or benefits company normally withholds the taxes that must be paid automatically as payroll tax. As said before, the payroll tax serves as a pre tax of the income tax. Company car If your employment comes with a company car, or you own a business and you have a company car, you gain a certain benefit by not having to finance your own car. This benefit is a percentage of the value of the car. The value of the car is determined as the original list price of the car in the Netherlands, including VAT and private motor vehicle and motorcycle tax. The percentage added depends on the amount of CO2 emissions of the car (in general between 14% and 25%). This will only be the case if you drive more than 500 km a year for private purposes. The percentage will be added to your total income in Box 1. If you are employed, the additional income is added automatically. In Box 1, there are several deductible expenditures. For instance, if you own a house and you are living in that house, the interest paid for the mortgage and other expenses are deductible. Expenses made for income insurances are deductible as well. Study costs and costs for health care are deductible if they exceed a certain minimum level. Below, a short explanation is provided for the deduction that could occur when you own owner-occupied property in the Netherlands: Owner-occupied property If you have an owner-occupied property that is your main residence, the Dutch income tax system works as follows: First, you must add an amount of income to your income from Box 1 (up on 0,55% of the WOZ value of your house). This is for houses with a value below 1.000.000,- EUR. For houses with a WOZ-value above 1.000.000,- an additional 5.500 EUR is added. Second, the interest paid on the mortgage for the house is deductible for a maximum period of 30 years (if you bought the house after 2001). Periodic payments towards a ground lease or building and planting rights can also be deducted. When you bought a house in a certain year, more costs are deductible, such as notary expenses, taxation expenses etc. The amount of tax you have to pay depends on your total income in Box 1. The more you earn in Box 1, the higher the percentage of tax you have to pay, with a maximum of 52%. Box 2 Income from a substantial interest Box 2 affects your income from shares and profit-sharing certificates that are part of a substantial interest. The rate is a flat rate of 25% in Box 2. Box 3 Income from savings and investments Box 3 relates to your capital. Your capital is calculated as the value of your assets minus the value of you liabilities. Not all your assets are taxed in box 3. For instance, your owner occupied property that is your principal residence and the mortgage concerning this owner occupied property are taxed in Box 1. Examples of assets are: - Savings; - Properties that are not your principal residence; - Shares and other securities; - Capital sum insurance that is not linked to the owner-occupied property that is your principal residence; - Annuity insurance for which the premium cannot be deducted. Examples of liabilities: - Personal loans; - Study loans; - Continuous credit, or a mortgage that is not used toward the owner-occupied property that is your principal residence. Please take into account that the first € 2.900,- in liabilities is not deductible from the capital in Box 3. Calculation of Tax For all taxpayers in the Netherlands, a tax-free allowance does exist. For the year 2010, the tax-free allowance is € 20.661,- per person. If you are elder than 65, or if you have children, the tax-free allowance might be somewhat higher. If the total value of your assets exceeds the € 20.661,- you are only paying taxes for the amount of assests that exceeds the € 20.661,-. The value of the assets will be measured bt taking the average assets on January 1st, and December 31st during a year. A notional yield of 4% on the average assets minus the tax-free allowance accounts for the income from savings and investments. The rate of tax is 30% in Box 3. Box 3, calculation of tax: Average total capital 80.000,- EUR Tax free allowance 20.661,- EUR -/- Income from tax and savings 59.339,- EUR notional yield (4%) 2.373,56 EUR income tax rate (30%) 712,07 EUR So, the tax in Box 3 is 712,07 EUR

2. VAT or BTW

Value added tax (VAT) The VAT is probably the most common tax among entrepreneurs. You’re more likely considered to be an entrepreneur for the VAT than for the Income tax. If you enter the market and become a competitors ofother entrepreneurs, you are sooner forced to charge VAT to your customers. So there’s a possibility that you’re considered to be an entrepreneur for the VAT and at the same time not for the Income tax. The frequency with which you should report tax returns is determined in the allocation of your VAT-number. This can be every month, every quarter or every year. The frequency depends on your turnover, but if you prefer a different frequency, we can submit a request to the Belastingdienst. At the end of the year, we can make an additional assessment (suppletieaangifte) if necessary. This is seen as a kind of correction compared to earlier tax assessments. You don’t have to pay right away if there’s made a additional assessment. You’ll get a tax assessment from the Belastingdienst and then you’ll pay the tax. As an entrepreneur, you have to charge a value added tax of 21%, 6%, or 0%, depending on the services/supplies you deliver. It is also possible that you supply exempted services. Your invoices need to meet the statutory requirements. If not, this can lead to problems for both your company and the client. Usually there also rests VAT on your own purchases. These are deductible, but there are some expectations. For example, the VAT you pay on your lunch and dinner receipts are not deductible. If you supply exempted services then it is not possible to deduct the tax. If you supply both exempted and taxable services then the ratio between these performances determines the level of deductibility. Not all subsidies are exempt from VAT. A project subsidy may be charged with VAT, depending on the specific subsidy conditions in the subsidy agreement. The tax for the taxable subsidies should be paid by the recipient. So it is possible that your right on the kleine ondernemersregeling will expire if the VAT exceeds the maximum. VAT Return From January 1, 2005, all tax returns need to be done electronically. For calculating the amounts that need to be paid or recovered, all receipts and invoices for that specific return period are taken into account. It is irrelevant whether the bill has been paid. It is therefore recommended that if you do not have much financial space, you’ll be aware with sending out invoices because you need to pay the VAT in advance. Based on the tax returns you pay the amount indicated. If you need an amount refunded, you will receive this after some time from the Belastingdienst.