Whether you are self-employed or an employee, everyone working in the Netherlands files Income Tax. You file your tax return for the previous financial year before 1 May. If you work as an employee, this is a relatively simple task because your salary is often filled in in advance, and you only have to check it. For freelancers, things are different. You fill in your income for the previous year, and you can benefit from various schemes. Keep reading if you're wondering what you are eligible for.
1. Check your tax schemes!
Are you entitled to specific arrangements for freelancers? Freelancers can use the Self-Employed Deduction, the Start-Up Deduction and the SME Profit Exemption. Note that this only applies if the tax authorities consider you an entrepreneur.
Using the Self-Employment Deduction if you are eligible for it is hugely beneficial. Your benefit can be as much as hundreds of euros per month. We have listed what you need to comply with:
- Do the tax authorities consider you an entrepreneur?
- Do you spend at least 1225 hours a year on your business?
- Do you run the business?
- Were you under 65 years old at the beginning of the calendar year?
You are eligible for the Self-Employment Deduction if you meet the abovementioned requirements.
Keep in mind that the Self-Employment Deduction does not apply to a private limited company. This is because a limited company pays corporation tax on its profits. Does one of the other legal forms apply to your business? Then you can make use of this scheme. This means you can deduct a fixed amount of €5,030 each year. Note: as of 2020, this scheme will be phased out. So keep in mind that the deductible amount varies every year.
When you start your business, you can use the Starter Deduction scheme. You can add this to the Self-Employment Deduction. You will then benefit from an extra deduction item amounting to €2,123. You may use this scheme three times within the first five years of your business.
- Are you entitled to the Self-Employment Deduction?
- Have you been an entrepreneur in one or more of the previous five calendar years?
- Did you not use the Self-Employment Deduction more than twice during this period?
If you meet the abovementioned requirements, you may use this deduction.
SME profit exemption
Do you make a profit from your business? Then you are entitled to the SME (Small and Medium-sized Enterprise) Profit Exemption. You do not have to meet the hour criterion for this deduction as with the above schemes. The SME Profit Exemption for the 2023 financial year is 14% of your total profit. Keep in mind that for this deduction, the Self-Employed and Start-Up Deductions have already been deducted from your profit.
Small-Scale Investment Deduction
When starting a new company, you must invest in business assets. Think of an office building or a laptop. Have you invested a minimum of €2,401 and a maximum of €59,170 in business assets in 2021? Then you are entitled to a deduction of 28% of the total amount. Note: have you not fully paid for an asset yet? Then you can only apply this deduction item for the part you have already paid.
2. Look closely at your business expenses
Do you incur business expenses? Then these costs are deductible from your turnover. But which costs are covered by this? The tax authorities regularly check whether your reported costs are business costs. In some cases, the boundary is vague.
An example is using your phone for private and business purposes. In that case, you can only report part of the costs as business expenses. For other business expenses, you can think of:
- Training, webinars or seminars
- Study materials such as professional literature
- Travel expenses (public transport and car)
- Business appointments such as networking get-togethers
Does your accountant prepare your tax return? If so, always double-check it. Check whether all costs have been correctly calculated and the regulations have been appropriately applied.
3. Build up your pension and benefit from tax breaks
By building up your pension, you can benefit from tax advantages. You can arrange your pension through annuity insurance or a bank savings account. Do you opt for this? Then your contributions are tax deductible. This way, the tax authorities help pay for your pension.
Turnover tax or VAT return
Besides income tax, as an entrepreneur, you also have to file a VAT return, also known as turnover tax. Do you have a VAT ID as a freelancer? Then you are liable to pay VAT. You file your VAT return every quarter. In doing so, you indicate how much VAT you received and paid in the past quarter. After the calculation by the tax authorities, you will know whether you receive a VAT refund or have to pay VAT.
Do you work part-time as a freelancer? If you earn less than EUR 20,000 per year, you are exempt from VAT.
4. When do you file your VAT return?
In general, you file a VAT return every quarter. In some cases, you can also do so annually or monthly. Did you receive more VAT (e.g. invoicing clients) than you paid (e.g. investing, paying rent)? Then you have to pay it back. Bear in mind that if you file your VAT return annually, the amount may also be much higher than if you file your tax return quarterly or monthly. It is, therefore, important that you keep the VAT amount separate. Did you pay more VAT? Then, of course, you will also receive an amount back.
5. Mistake in your VAT return?
Don't worry; you can correct this using the 'Supplementary VAT Return' form. You are obliged to correct mistakes. Is the difference less than EUR 1,000? Then you don't have to update it with a form. You may make the corrections in the next VAT return.
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