Did you recently register your business at KVK? Or are you about to do so? As a starting business you will have to deal with taxes. What is the difference between turnover tax and income tax? And which deductibles and allowances can a starting business make use of? Use this article to help find your way. It features a calculation example for income tax, so you can estimate how much money to set aside for taxes. Then you will know what to expect when you file your VAT and income tax returns.
What is turnover tax (VAT)?
If the Tax Administration sees you as an entrepreneur, you have to file VAT returns (‘btw-aangifte’). Most entrepreneurs have to file every 3 months. You have 1 month after the end of the quarter to do so. So, if you need to file your VAT return for the first quarter of a year, the deadline for filing – and paying – is 30 April.
The Netherlands works with 3 VAT tariffs: 21%, 9%, and 0%.
- 21% - As an entrepreneur, you are obliged to levy VAT on the goods or services you provide. The standard tariff is 21%, also called the high tariff. This tariff applies to most entrepreneurs.
- 9% - The 9% applies to a limited number of services: hairdressers and shoemakers, for instance.Check the Tax Administrationwebsite(in Dutch).
- 0% - The 0% VAT tariff applies when you providegoodsorservicesinternationally, within the EU. If you export products to a business client in another EU country, you use the 0% VAT tariff. Your client then pays the local VAT, not the Dutch VAT.
VAT exempt
Some professions are exempt from VAT. Examples are physical therapists, nurses, and childcarers. If you practice one of these professions, you do not charge VAT. Nor can you deduct the VAT you have paid.
Tip: did you make business expenses before you registered with KVK? You may deduct the VAT and costs that you made up to 3 months prior to your registration from your VAT and income tax. So hang on to your receipts
Example of a VAT return
Nora is a pedicurist. She purchases footcare products and gives treatments.
She spends €300 on stock purchases. She pays €63 in VAT (21% of 300). Including VAT, Nora has spent €363 on inventory.
She has given 20 treatments at €25, in total €500, VAT excluded. VAT included, she charges her customers €30.25. Her turnover is €605. That means she has received €105 in VAT (€605 - €500).
In her VAT return, she lists these amounts:
| VAT return | Amount |
|---|---|
| VAT paid | € 63 |
| VAT received | € 105 |
| VAT due | € 42 |
What is income tax?
Turnover is the money you make. You deduct the costs you make for your business from that. What is left is the gross profit. You have to pay income tax on your gross profit. If you make more profit, you pay more tax. Income tax is calculated after the book year has ended.
This article features a fictitious calculation example of an income tax return for a self-employed professional without staff (zzp’er). Do you want to calculate how much income tax you have to pay? Use the 'rekentool inkomstenbelasting' (calculation tool income tax, in Dutch). The tool shows you how the new tax tariffs affect your income. It is important to put aside money for this.
The income tax for 2023 is based on 2 boxes. Until you reach the state pension age, these tariffs apply:
- Box 1
36.93% over the taxable income up to €73,031 - Box 2
49.5% over everything you earn over €73,031
Consider these fiscal deductibles
Deductions are a discount on income tax. This is how the government encourages entrepreneurs. To use entrepreneur deductions, you must be an entrepreneur according to the Tax Administration's criteria.
General tax credit
Anyone who has to pay taxes may use the general tax credit. You deduct this discount from the amount you have to pay in income tax and national insurance contributions.
Private business ownership allowance
You can make use of the private business ownership allowance if you work at least 1,225 hours on your business. Do you have a sole proprietorship and are also a partner in a vof or partner in a professional partnership? Then you may count all these hours. Have you been an entrepreneur for more than 5 years? In that case, you must spend more time on your business than on other activities, such as working as an employee. For 2023, the private business ownership allowance is €5,030. You may deduct this amount from your profit.
Tax relief for new companies
If you are eligible for the private business ownership allowance, you are also eligible for the tax relief for new companies scheme. In 2023, you may deduct an extra amount of €2,123 from your profit in your income tax return. You may do so 3 times in the first 5 years after starting your business.
SME profit exemption
You are entitled to the SME profit exemption if your business is a sole proprietorship, a vof, or a professional partnership, and you are an entrepreneur for income tax. It does not matter if you have spent 1,225 hours on your business. The SME profit exemption is deducted from your profit after you have deducted the private business ownership allowance and the tax relief for new companies. It amounts to 14% of the remaining profit.
An example of an income tax return
Karim is a zzp’er. He has been registered at KVK as a sole proprietor since 2019. He is an interior decorator. Karim has spent more than 1,600 hours on his business. His hourly rate is €50, and he has made 900 billable hours. Billable hours are hours Karim can charge his clients for services rendered. This is an example of his profit calculation1 and the amount of income tax he will have to pay.
Employed person's tax credit
The employed person's tax credit ('arbeidskorting') is an amount you are allowed to deduct from your labour income. For self-employed people, the labour income is your profit before deducting the private business ownership allowance, tax relief for new companies, and SME profit exemption. The amount of the tax credit depends on the amount of your profit.
What is the income-dependent health insurance contribution?
Besides the monthly health insurance premium, you also pay an income-dependent health insurance contribution of 5.43% in 2023. The premium is calculated over your business' taxable profit.
Taxable profit is calculated like this: Profit from business - private business ownership allowance - tax relief for new companies - SME profit exemption = taxable profit.
If you are in paid employment, the income-dependent contribution is paid by your employer. If you are a self-employed professional without staff, you pay this contribution yourself. The Tax Administration will send you an assessment. This amount is not included in the example in this article.
What is a provisional assessment?
If you have filed an income tax return before, the Tax Administration can estimate how much turnover you will have in 2023, and how much income tax you will have to pay. A provisional assessment means you pay your income tax and health insurance contribution in instalments. The advantage: you will not have to pay the full amount in one go.
Is the small businesses scheme (KOR) right for your business?
Is your turnover less than €20,000 per calendar year? Or has it decreased to less than €20,000? Consider using thesmall businesses scheme, the KOR.
The KOR is a turnover tax exemption. You can register for it with the Tax Administration. With the KOR, you do not charge VAT on the goods or services you sell. Nor can you deduct the VAT on expenses. You have less administration and do not have to file a VAT return.
Learn more in this tax webinar
The Dutch Tax Administration hosts a monthly webinar on taxes, especially for starting companies. This free webinar is in Dutch. You canapplyfor it via this link. Or you can watch the Business.gov.nl webinar'Taxes for entrepreneurs in theNetherlands'.
1. We have drawn up this calculation with all due care. Nevertheless, we cannot guarantee that there are no mistakes. Did you spot an error or omission? Let us know by using the feedback option underneath the article. Your input is appreciated.
