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Income Tax

Two type of taxes and its regulations

Income Tax and Its Regulations

Everyone with an income in the Netherlands, pays income tax to the Dutch tax authorities. Whether income exempt from wages or from corporate profit; Dutch tax law requires income tax to be paid. Income tax in the Netherlands is regulated by the “Tax Law of 2001”. The income tax Netherlands has to be done each year before the 1st of May. It used to be done before 1st of April but the regulations changed in the few past years. The fiscal year however is the same as always, the calendar year.

Two type of taxes

Limited Liability Company
If you have a limited liability company, you are an employee of your own company. The B.V. has to pay corporate-dividend tax and wage tax to the Dutch tax authorities for you as an employee. The entrepreneur allowance described above cannot be applied for by a limited liability company.

For both non-limited and limited companies, expenses can be claimed as business expenses. For example costs for travel, marketing, communication, legal, accountancy, equipment, or services from a third party can be deducted as business expenses.

Dinner, gifts and study trips or conference attendance costs are only partially deductible. Not deductible are clothes, fines, personal devices, personal computers, and general literature.

If you need a car for your business, you have two options. Use your own private car for the business or put a car on the balance of the company. With the first option, you can claim the business kilometer against € 0,19 per kilometer. The second option makes it possible to deduct all the expenses (fuel, insurance, taxes). However, at the end of the year you must add the car to your personal income because of the personal use. As a result, you will have higher income. Which option is the best depends on the personal situation.

Based on the administration the income/corporate tax return must be filed. This must be done before May 1 of every year. Before Juni 1 is for the company IC. As an entrepreneur you will receive an invitation from the Dutch tax authorities. Most tax advice companies have an extension arrangement with the Dutch tax authorities. In that case the tax return can be filed one year later. Be aware that if you file the tax return too late penalties will be issued.

Non-Limited Liability Company
If you have a non-limited liability company as a self-employed entrepreneur or freelancer, you have to declare your income as ‘business profits’. In that case, you can also apply for certain entrepreneur facilities such as investment allowance, tax-deferred retirement reserve, and entrepreneur allowance (tax credits). Some entrepreneur allowances are:
  • Self-employed persons allowance (Zelfstandigenaftrek)
  • Starter allowance (Startersaftrek)
  • R&D allowance (S&O Aftrek)
  • Co-working partner relief (Meewerkaftrek)
In order to qualify for these allowances, you have to meet the ‘hour criterion’, meaning you have to be active for at least 1.225 hours a year. This includes direct working hours, but also hours spent on travelling, market research, and administration. In your first year, it is smart to keep an administration of your hours spent. For example, you must work in your company 50 weeks of 24,5 hours a week. For certain cases they make an exemption, such as pregnancy.
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