VAT and income tax for new entrepreneurs in the Netherlands
When you register with the Dutch Chamber of Commerce (KVK), you also have certain obligations to the tax authorities. Many start-up entrepreneurs think that registering with the Chamber of Commerce automatically means that you are liable for VAT and income tax. That is not always the case, as different rules apply to each tax. In the following article, we help clarify what the differences are.
Entrepreneur for VAT purposes
Are you registered with the Chamber of Commerce and do you regularly sell products or services to customers outside your circle of family and friends? Then in many cases you are considered an entrepreneur for VAT purposes. This means that you must charge VAT to your customers and file periodic VAT returns.
What does this mean in practice?
As a VAT entrepreneur:
- you calculate VAT on your sales;
- you pay this VAT to the Tax and Customs Administration;
- you can reclaim the VAT you pay on business expenses. This is called input tax.
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How many VAT rates are there?
In the Netherlands, we have three VAT rates:
21% – General rate. This is the standard rate and applies to most products and services.
9% – Reduced rate. For certain Goods and Services a reduced rate applies, such as food, books, hairdressing services and some cultural activities.
0% – Zero rate. A zero rate can be applied in certain international situations and for specific Goods and Services, such as some export transactions. Different VAT rules often apply to international trade.
Not every entrepreneur is required to charge VAT as Some professions and activities are exempt. If you are exempt from VAT, you do not charge VAT to your customers, you cannot reclaim the VAT on business expenses and you usually do not have to file a VAT return. Which exemptions apply depends on the Activities that you perform.
Are you unsure which VAT rate applies? Then it is wise to check this in advance. An incorrectly applied rate could lead to retrospective taxes.
Entrepreneur for income tax purposes
Registering with the Chamber of Commerce does not automatically mean that the Tax and Customs Administration regard you as an entrepreneur.
The Tax and Customs Administration assesses the following points, amongst others:
- Your work is not a hobby and is part of economic traffic.
- You aim to make a profit.
- It is reasonable to expect that you will actually make a profit.
- You work independently.
- There is continuity: your company is focused on long-term activities.
- You run entrepreneurial risk, for example financial risk.
- The scope of your work plays a role, both in terms of time and turnover.
If you meet the conditions above the Tax and Customs Administration will consider you an entrepreneur that is liable to pay income tax.
Profit from business or other activities?
Do you meet the conditions for entrepreneurship? Then you are required to declare your income as profit from business in your annual tax return.
Do you not meet all the conditions above, yet earn income from self-employment? Then you can usually declare it as a result of other activities.
This occurs, for example, when you have a salaried job and occasionally carry out assignments as a self-employed person.
Why is this distinction important?
The main difference is in the tax benefits.
If you are self employed and paying income tax, you may be able to make use of various deductions for entrepreneurs, such as:
- self-employed deduction (if you meet the conditions);
These deductions reduce your taxable profit, so you pay less income tax. Do you have income from other activities? Then you cannot apply these deductions.
Are you unsure whether you are an entrepreneur?
The Tax and Customs Administration has developed a handy Entrepreneur Check (in Dutch). This allows you to assess whether you are considered an entrepreneur for income tax purposes and which tax rules apply to you.
For many start-up entrepreneurs, it will be wise to do this check shortly after registering with the Chamber of Commerce. Especially when you are going to file your income tax return for the first time.
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Want to know more?
The rules surrounding VAT and income tax are not always simple. Moreover, your personal situation can determine the way you file a tax return.
As an entrepreneur are you unsure whether you are required to file a VAT and/or income tax return? Or maybe you are unsure which VAT rate you should use or how you can best organize your administration? If you would like to delve deeper The Chamber of Commerce has a handy Start-up portal with a wealth of useful information. In this article we highlight the most interesting tax schemes regarding income tax benefits aimed at entrepreneurs. You can Read more hereregarding combining salaried work with self employment. Please Feel free to contact us, We are always happy to help start-up entrepreneurs get on their way, so that you can do business with peace of mind.
Learning from experts with experience
Tip! Check out the 'interviews' section on the Artlupa website. Here you will find a series of articles in which entrepreneurs talk from their personal perspective about starting and growing their own business, as well as some of the challenges they faced. We hope their stories and experiences will help inspire you as you begin your entrepreneurial journey.