Payday: your income from a Dutch freelancing company
Oct 16, 2023
So you have decided to come to the Netherlands and work from your own company. If you’re lucky, you have been able to obtain a very beneficial 30% ruling along the way. Now you have everything in place, your mind starts to wander off: how much exactly will you be earning when you are here ? At the end of the day you want to know how many groceries you can buy each month. So in this article we will be painting you a (very) simplified picture of what that looks like.
Most Dutch people consider doing their own accounting work too difficult. As a foreign business owner in the Netherlands, you can just forget about that and move right along. Apart from the complexity of the rules, there’s the quirky fact that the Dutch Tax Authorities don’t communicate in English. That includes issues such as the 30% ruling or getting a VAT number as a foreigner, which by definition involve non-Dutch speakers. You are going to need an accountant for your business, and they can tell you exactly how much you will be earning after taxes. But that doesn’t really help you, because you want an estimation now. So that’s what we’re going to do. Please consider this article and all amounts as really, really rough indications.
Let’s work with an example. You are an expat moving to the Netherlands. You have built up a track record as a software engineer and now is the time to start selling your services as a freelancer. The Netherlands, like many other countries, have an income tax exemption scheme to lure high earning (and high spending) expats into the economy. It’s called the 30% ruling (check here for more info). This ruling makes sure that 30% of your net income is exempted from income tax. As long as you meet the criteria, you can also get this ruling in your own BV. You are a director here, and you can let the 30% ruling apply to this employment relationship. Check this article for more info on getting a 30% ruling in your own BV.
You’re over 30 years old, so you’ve read there’s a salary threshold of € 41,953 (2023). You signed a consulting contract that ensures you will be invoicing € 8,000 each month, amounting to annual revenues of € 96,000. You will be using that revenue to pay yourself enough salary in your BV to meet the salary requirement. But how much will you be pocketing then, after taxes? First off, you must realize that freelancing means you are going to be a business person. When in business, the cost usually comes before the profit (see picture for the Dutch version of this famous mantra). This means you need to prepare for roughly the following costs:Setup of your BV + 30% structure : € 2,000 * Yearly accounting costs : € 3,000 Generic costs (phone, laptop, bank account) : € 1,000In total: € 6,000
(* All costs and revenues mentioned in this article are plus VAT. Salary, dividend and tax payments don’t carry VAT. Check this article for more about VAT in the Netherlands.)This means you should subtract € 6,000 from your annual revenues of € 96,000 which gives you € 90,000. Now we’re going to look at how to disburse this € 90,000 as tax efficiently as possible. There are two main ways in which you can extract money from your BV to your private purse: either as dividend or as salary. The other two ways are a loan or a current accounts withdrawal. You can use the latter ways to finance private purchases, but they need to be paid back eventually so we’ll forget about those for now. Also bear in mind, you don’t have to pay out salary. You can also reserve cash in your BV, and use it for reinvestment in other ventures, a pension scheme or a personal mortgage to buy a house. Check this article for more info on that.
Taxing Dutch directors
As a freelancer or business owner, you are going to be a director - major shareholder (in Dutch “DGA”) in your BV. That means that your pay rolling will become simpler than a normal employee’s. Your employer’s taxes will become lower and you can opt out of holiday money (which is compulsory for normal employees). Now we are going to look at how to distribute your € 90,000 as either dividend or salary. For this, a couple of things are important to bear in mind:Dividends are taxed more leniently than salary. If possible, you want to pay out as little salary and as much dividend as you can.Under Dutch Tax law, you need to pay yourself at least € 48,000 in salary before you can start paying out dividends.If you are lucky enough to have a 30% ruling, it’s almost always more beneficial to pay out salary rather than dividend.
Situation with 30% rulingWith a 30% ruling, you will look into disbursing the € 90,000 as salary in full. With the application of the 30% ruling, that means you can pocket 0,3 * € 90,000 as salary under tax emption. That’s € 27,000 for you. You then subtract the €27,000 from the € 90,000, which makes for € 63,000, which you then tax under “normal” DGA pay rolling. For this, tax calculators abound such as this one. Out of the € 63,000 you will receive a net salary of € 39.188. Add that to your tax-exempted € 27.000, and you will walk away with € 66,188 net per year from your € 96,000 in total consultancy revenues. The timing in which you pay this out is irrelevant. You can make small monthly salary payments, and pay out a big bonus at end of year when your cash position is certain.
Situation without 30% ruling
If you don’t have the 30% ruling, the normal rules for salary and dividend disbursements apply. That means that first off you need to pay out at least € 51,000 in annual salary to yourself (2023). You receive about € 31,682 net income on this. So you must deduct € 48,000 from your € 90,000. That leaves you with € 43,000 in profits, before taxes. Your profits will be taxed at 19% (2023), meaning you have to reserve € 7.095 in profit taxes before you proceed. That leaves you with € 35,905 in net profits after taxes, to be disbursed as dividends. When you receive these dividends in your private purse, they will be taxed under BOX 2 income at (on aggregate) 26,25%, which makes for a total of € 26,479 in net dividend. So with an annual salary of € 31,682 and annual dividend of € 26,479 you will pocket € 58,161 net per year on your € 96,000 in total consultancy revenues. The timing in which you pay out salary is irrelevant. You can make small monthly salary payments, and pay out a big bonus at end of year when your cash position is certain. The dividend is usually paid out after the end of the year, once you adopt your annual accounts.
We realize this is a lot to digest. So in a nutshell:Take your revenuesDeduct all your operational costsEstablish the amount of salary you wish to pay out (depending on 30% situation)Calculate the net amount of your salary : that’s in your pocket.If you left something to disburse as dividends : first apply profit taxes of 16,5% The remainder will be taxed as dividends under Dutch BOX 2 régime at 26,25%After reading this, you will understand more than ever you are going to need an accountant. But we do hope it gives you a rough indication of what to expect when you move to the Netherlands and setup shop here. Do you want to know more about moving to the Netherlands as a freelancer or business owner?
Please do not contact us for specific questions about your financial situation. Cardon & Co. is not an accountancy firm, we help set up your business in the Netherlands. This article is meant to paint a picture of what you’re in for after that. Recommended further reading: