There are two types of self-employment:
› business income
› income from other activities
The Dutch tax authorities will assess your situation and they will classify your activities as either business income or income from other activities.
Administration
In both cases you are required to keep regular accounts, but in the case of income from other activities the bookkeeping can be more simplified. As a self-employed person the bookkeeping must be more extensive and you are required to have a profit and loss statement.
Income tax return
When filing the income tax return you will need to declare the income / profit you made from your business activities. If the income is classified as business income by the tax authorities, you are entitled to self-employment benefits. If the income is qualified as income from other activities, you are not entitled to these tax benefits.
The possible tax benefits are the self-employed benefit (zelfstandige aftrek), the starting business deduction (startersaftrek), and the small business deduction (MKB winstvrijstelling). In order to be entitled to these tax benefits you need to comply with specific conditions.
To be eligible for the self-employed benefit you need to spend at least 1.225 hours per year on your business activities. The tax benefit is a lump sum amount of 7.280 euros.
To be eligible for the starting business deduction your income must have been classified as business income in no more than one of the previous five years. The starters deduction can be applied for a maximum of three years, while the tax benefit is 2.123 euros.
The tax benefit for the small business deduction is a 12% reduction of the taxable amount after deduction of the self-employed benefit and starting business deduction.
VAT obligation
As a self-employed person (either with business income or income from other activities) you may have VAT filing obligations. This is because for the VAT, entrepreneurship is defined differently than for income tax. For VAT you need to comply with the legal requirements for invoices. If you do not comply with these requirements a penalty of up to 4.920 euros can be imposed.
The most important requirements are: the invoice needs to have your VAT number in it; it needs to be numbered uniquely; the correct amount of VAT needs to be indicated on it.
VAR (verklaring arbeidsrelatie)
As a self-employed person you can get a declaration of employment relationship (VAR) from the tax authorities. Some of your clients will want to see a copy of the VAR. The VAR states that the tax authorities classify you as self-employed. The advantage of this for the client is that they do not need to treat you as an employed person and calculate payroll taxes.
Preliminary assessments
If you receive a preliminary tax refund (because in the past you were employed and have a main residence with mortgage deduction) you need to amend the preliminary refund. This is because your tax situation changes when you become self-employed.
The big difference is that no monthly payroll tax is deducted from your salary. If you do not amend your tax refund, the refund that is calculated is too high and you will need to pay back the excess amount you receive. This is added to the tax payable on the self-employment income.