6 tax breaks for business owners in the Netherlands

Nov 1, 2020

The Dutch tax man wants a share of your dime, one way or the other. But on the other side, this system is also used by the government to incentivize business in the Netherlands by offering discounts and breaks. The only difference is: the former happens automatically, the latter you need to work for yourself. In this article, we will dive into the options you have.

1. KOR

The Dutch Taxation system exempts certain small entrepreneurs from VAT obligations. The so-called "Kleine Ondernemersregeling", or KOR for short, is aimed at entrepreneurs who earn at most € 20,000 per calendar year. It doesn't matter whether you work from an eenmanszaak or BV, as long as you're registered in the Netherlands. Your request needs to be received by the Dutch Tax Authorities this Thursday, December 3d, if you want to be exempted during 2021. The exemption period lasts for 3 years.

The exemption is significant: not having to charge VAT to your clients lowers your invoices by as much as 21%. And of course it relieves you of the burden of keeping a VAT administration and doing VAT returns. But beware: being VAT exempt means you cannot reclaim paid VAT on expenses either. In general this is the rule: if your costs are low, you have mostly end-consumers as clients and/or you work in services and advice, the KOR may be for you. Otherwise, it may be wise to stay away. This is especially the case when you're active in the purchase and sale of goods (for example: a web shop).

2. 30% Rule

The 30 % ruling is intended as compensation for the expensive life and lifestyle of expat employees in the Netherlands, so called “extraterritorial expenses”. These are the main rules:

  1. You have been recruited from abroad by a Dutch company to come and work in the Netherlands. This means that, prior to being recruited, you must have lived for at least 16 months at a distance of at least 150 kilometers from the Dutch border.

  2. Your annual salary before taxes must be more than € 38,347 (2020). If you hold a master degree and are younger than 30 years, your annual salary before taxes must be more than € 29,149 (2020).

  3. Your employer must be on board with the ruling. It is a collective request.

  4. Make your request to the Dutch tax authorities within 4 months after the start of the employment in the Netherlands.

You can read more about the 30% ruling in this article.

3. ZZP aftrekposten

If you’re working from an eenmanszaak, or EZ, there are considerable income tax advantages to be had. Look for the “Zelfstandigenaftrek” , “Startersaftrek” and “MKB Winstvrijstelling”. This can add up to € 10,000 - € 15,000 per year (!). Make sure you comply with the rules that apply here. In short: spend at least 1225 hours per year in your EZ, have 3 or more clients, promote your business, use correct freelance agreements.Be mindful of the rules that distinguish between employment and freelancing under Dutch tax law. The tax Authorities look careful at your actual situation.  Are you working for one and the same company for a year or longer? Are you asked to lead a team? Do you not actually behave and promote yourself as a separate business from your employer? Be careful : the Tax Authorities may consider you an employee “in disguise”. This may mean they will claim additional taxes and forfeit your tax breaks.

4. Labour Cost Scheme

The labor costs scheme was introduced on 1 January 2015. This rule means that you can spend a maximum of 1.18 % (in 2021) of your total wage bill tax-free on payments to your staff. These are usually used for giving perks to loyal employees, like gym subscriptions, Christmas gifts or an awesome bottle of champagne when you hit your targets this year. This arrangement also applies to yourself as a director in your own holding company. You are an employee there, after all. If you have not yet used the free space (1.18 % of the total wage bill pre tax), do so before the end of the year. With a DGA salary of € 46,000, that means circa € 500 in tax savings! It's a shame to miss out on it. 

5. Mortgage from your personal holding

Yes, you can use your holding as a mortgage provider. A mortgage is just a securitized loan, after all, and last time we checked banks didn’t have a monopoly on those. It can be a very attractive option. Not only is the mortgage interest deductible from your gross director’s salary, you can perform a number of additional tricks too. Under Dutch law, a home owner may deduct mortgage interest from his taxable income. This only applies to your first home, and not when you’re owning a home as an investment. If you use this well rule well, you can save yourself a tidy sum.

Here goes: draw a high amount of mortgage from your personal holding. This leads to a high mortgage interest. By making the loan subordinated to other creditors and by not establishing a right of mortgage (which technically just makes this a regular loan, not a mortgage), you can justify this higher interest rate to the tax authorities. This high rate leads to a high deduction from your taxable income, starting with the income that falls in the highest income bracket (49,5%). This reduces your Income Tax bill significantly. Of course you need to pay the interest to your holding, but you can later pay this out as dividend to yourself. In this article we elaborate on this with an example. If you have a € 100.000 annual salary, this scheme can put € 10.000 after taxes in your pocket at end of year.

6. NOW regulation

These have been testing times for entrepreneurs worldwide. Governments everywhere have tried to come up with a solution for the wave of unemployment that’s expected in the wake of COVID-19. Some governments have opted for straight up cash payments, like for example the USA. Other governments have chosen to compensate companies for keeping idle workers on the payroll, like here in the Netherlands. In this way, the government intends to put money in the pockets of employees while keeping the economy alive.

The Dutch Government has issued a third Noodmaatregel Overbrugging Werkgelegenheid (NOW for short) starting as of October 1st, 2020 and running until July 1st, 2021. The NOW compensates a percentage of a company’s wage bill, as long as it abides by the strict rules set out. The percentage of the wage bill covered starts at 80% and then gradually declines to 60% over the course of three 3-month periods.

These are the most important rules to abide by:
(i) Dismissal of employees is limited to 10%, 15% and 20% of the total wage bill, increasing over the course of the three periods.
(ii) Your company has a revenue loss of 30% compared to the same period last year.
(iii) You need to make a reasonable effort in guiding employees to a new job.
(iv) Participation in NOW 1.0 or NOW 2.0 is not mandatory for NOW 3.0The NOW 3.0 application window closes at December 16th, 2020!  Written: November 2020Do you have any questions after reading this? Don’t hesitate to reach out.

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