Dutch Tax Tips: Contractors & Freelancers
Whether as a foreign company or a private individual, you may be toying with the idea of starting a business in the Netherlands. This is the second article of a series of three that will discuss the possibilities open to you.
The first article examined starting up a new business or Dutch branch of your existing business, including indicating which tax obligations apply. This article will focus on the aspects of starting a business as self-employed contractor with no staff.
Starting as an independent contractor / freelancer in the Netherlands
For a budding entrepreneur, starting off as an independent contractor or freelancer is one of the easiest ways to begin building your business.
In principle, a freelancer performs work for different clients on a contract basis, working on assignment from the client rather than being employed.
The absence of an employment agreement is very important in terms of tax. If you are self-employed, then a client does not have to withhold payroll tax and social premiums when they pay you.
Entrepreneur or Employee?
As a freelancer, you run the risk of so-called disguised employment, where your situation very much resembles that of a paid employee.
In this case, both you and your client may eventually face hefty costs, such as payroll tax and social contributions.
Declaration of Independent Contractor Status (Verklaring Arbeidsrelatie, VAR)
Before doing business, clients often want proof that they are actually dealing with an independent contractor.
For this reason it is a good idea to request a Declaration of Independent Contractor Status (VAR) from the tax authorities.
This is the tax authorities’ assessment of your situation and whether they consider your activities to be employment in the usual sense or contracting.
Tips for contractors & freelancers
› For self-employed and freelancers the same rules apply as for other businesses, such as compulsory registration with the Chamber of Commerce.
› Freelancing and independent contracting are not types of legal entities in the Netherlands. Many contractors and freelancers choose the business form of sole trader or company.
› Contractors and freelancers are eligible for a number of beneficial tax schemes as long as they spend at least 1.225 hours per year (24 hours per week) on their business.
Contractors and freelancers in the Netherlands are eligible for a number of tax deductions, meaning you can deduct an amount from your profits, thereby reducing your tax payable.
You are only eligible for the deductions, however, if you are not liable for company tax.
Summary of tax deductions for contractors & freelancers
Below is a summary of the most common tax deductions for contractors and freelancers in the Netherlands. Take note of the conditions attached to the deductions.
› Self-employment deductioν
From 2012, the self-employment deduction is a fixed amount of 7.280 euros, under the conditions that:
- You practice a business or profession independently
- You fulfill the minimum hours condition
› Starter’s deduction
This is an extra deduction for new business starters, in addition to the self-employment deduction.
Its conditions are that:
- You are entitled to the self-employment deduction
- You have only used this twice at most in the last five years
- You did not have a business for at least one of the last five years
› Contributing deduction
If your partner has contributed to your business without any payment, then you may deduct an amount from your profits.
This amount depends on the amount of profit and the total number of hours that your partner contributed. For this, you must also fulfill the minimum hours condition.
› Fiscal retirement reserve
This allows you to set aside money for your retirement for which you don’t have to pay tax (now).
You may use a maximum of 12 per cent for your fiscal retirement reserve, but there is a maximum total amount. You must also be under 65 years old.
› Arbitrary depreciatioν
Assets that you have bought for your startup business may be depreciated "arbitrarily."
You can decide yourself how much you depreciate, under the conditions that:
- You have a sole-tradership, partnership or company
- You are entitled to the starter’s deduction.
Additional conditions can be found on the website of the Dutch tax office (Belastingdienst).
› SME profit exemption
Another deduction is that you do not have to pay tax over 14 per cent of your profit. This is the profit after other deductions have been calculated, such as the self-employment deduction.
Note: in 2012 the SME profit exemption was still 12 per cent. If you are doing your tax return over the 2012 year, you must use the 12 per cent rate.
Starting as a freelancer has many fiscal benefits, particularly with regard to tax deductions.
It is important, however, to consider all the circumstances specific to your situation. With that in mind, it is best to consult a tax adviser who knows all the ins and outs of the business.