Starting a business as sole proprietor in the Netherlands

Broadstreet has been advising professionals, entrepreneurs and expats on reaching their personal and financial goals for over 25 years. In this article, they explain how tax works on your worldwide assets.

Starting a business is always an exciting moment, especially when you set it up in a country where you neither understand the rules nor the language.

Here are the basic rules and requirements for starting your own business as an expat in the Netherlands. Get ready to take your first steps on the Dutch market as an entrepreneur!

Register with the Dutch Chamber of Commerce

The first step you need to take is to register with the Dutch Chamber of Commerce (Kamer van Koophandel or KvK). They will give you a registration number.

Generally, the Chamber of Commerce will also notify the tax office in order for you to receive a VAT number. However, it is also possible to apply for a VAT number directly with the tax office.

Once you’re registered with the Chamber of Commerce, the tax office will automatically register your business as well. You will receive the confirmation of the registration with the tax office, together with a username and password.

The username and password are required for logging into the secured portal of the tax office website, an area that’s reserved for entrepreneurs. Through this portal, you can submit the VAT returns.

If you have a consultant that takes care of your tax filings you don’t need to share your personal log-in details. Most firms have their own software program and have a direct link with the tax office to submit returns on behalf of their clients.

Bookkeeping

You are not required to use an accountant or a specific bookkeeping program to keep your books. Many small companies use Excel for their administration. It is of course important that your books are up to date, and it needs to be done on an accrual basis, not on a cash basis.

That means that revenues are recognised on the income statement when they are earned, rather than when the cash is received. You will soon find that specific administration software can be very helpful in avoiding mistakes.

Expenses you incur for your business activities can be offset against your turnover. Some expenses cannot be deducted, such as:
› Cost for personal hygiene (hairdresser, massage)
› Penalties (speeding tickets, parking tickets, etc.)
› Office space in your home (only allowed in very exceptional cases)

Charging VAT on your services

Basically all entrepreneurs are required to charge VAT on their services.  The applicable VAT rate depends on the type of services or the goods sold.

The VAT is added to the total invoice to your client. You collect the VAT on behalf of the tax office. Any VAT you pay on business-related expenses is reclaimable.

Taxable income

Once you have determined your business profit, you probably wonder: how much will the Dutch tax office take?

Even though the tax rates for business profit are the same as for employment income, there is a difference between the gross business profit and the taxable profit.

As an entrepreneur, you are entitled to several tax advantages. These advantages reduce the taxable profit.

Investment deduction

Any asset you purchase for the company with a value of more than 450 euros is considered to be an investment. In general, investments have to be depreciated in five years.

It's the annual depreciation and not the purchase price that's counted as an expense for your company. If you invest for more than 2.300 euros per calendar year in your company, you are entitled to the investment deduction.

The investment deduction consists of a deduction of 28 percent of the total sum of investments made in a year.  

If the total sum of investments in a year exceeds 56.024 euros, the investment deduction decreases. It may therefore be profitable to expedite or postpone your investments to the next calendar year in order to take full advantage of the investment deduction.

Self-employment deduction

The self-employment deduction amounts to 7.280 euros, but will not be more than your gross profit. In case your gross profit is less than 7.280 euros, the remaining deduction will be carried forward to the next year.

For the first three years of your business, the self-employment deduction is increased to 9.403 euros in total. For these three years the deduction can be offset against your gross profit, regardless of the amount of your profit.

Retirement reservation

You are allowed to deduct 9,8 percent of your company profit for retirement savings, but no more than 8.774 euros per year.

You do not actually have to put this money into a retirement fund, but if you decide to shut down your company the tax office will require you to transfer the full amount of retirement savings into a pension plan.

If you do not want or you are unable to pay the funds into a pension plan, the full amount will be added to your taxable profit. The pension reservation can never be higher than the equity the business has.

Small company discount

After taking into account all of the deductions listed above, the remaining profit is reduced by 14 percent (the so-called small companies discount), to come to a taxable profit.

Mandatory health care contribution

As an entrepreneur, you will also have to make mandatory contributions for health care. This contribution is in addition to the premium you pay directly to your insurance company.

The contribution amounts to 5,5 percent of your taxable profit, but will never be more than 2.901 euros per year. The contribution is collected by the tax office and the assessment will be imposed together with the income tax assessment.

There are many rules to keep in mind, but the main thing to focus on is: enjoy being an entrepreneur in the Netherlands!
 

Looking for guidance on how to file your taxes in the Netherlands? Contact Patricia van der Hut, a partner at Broadstreet, providing specialist tax and accountancy services to expats.

Previously under the name Finsens, the tax, accountancy and payroll divisions were renamed Broadstreet in 2016.