As the end of the year approaches, many entrepreneurs are calculating how much tax and contributions they will have to pay. In the Netherlands, sole proprietors and VOF members are taxed based on annual profit: the more deductible costs, the lower the profit, hence the lower the tax and contribution amounts. Here are a few points to help with the calculation!
Common Misconceptions Many believe that beginner entrepreneurs do not pay taxes for three years. This is not true. If a beginner entrepreneur works 1225 hours a year for their company (working hours, travel, other business-related activities), they do not have to pay personal income tax up to approximately €20,000 net profit, only a maximum of 5% pension contribution. Above €20,000 net profit, they fall into the same tax bracket as an established entrepreneur. It doesn’t matter if someone starts a business in January, July, or September; at the end of the year, the question is whether the 1225 hours have been completed or not. So, it is not prorated based on the months spent in business. However, it is also not true that entrepreneurs do not receive benefits after the first three years. After the first three years of beginner entrepreneurial benefits, the general entrepreneurial benefit remains, but the beginner entrepreneurial benefit is no longer available. After the first three years, entrepreneurs receive tax exemption for approximately €17,000-€17,500 net profit annually. The beginner entrepreneurial benefit can only be claimed if the 1225 hours are verifiably completed.
What benefits are available? Entrepreneurial benefit: Can be claimed every year if the 1225 hours are completed. Beginner entrepreneurial benefit: Can be claimed three times in the first five years if the 1225 hours are completed.
Deductible costs
All costs related to the business are deductible:
Accounting/advisory costs
Work clothes
Tools
Small office supplies, office furniture
Electronic devices (e.g., computer, laptop, printer, keyboard, etc.)
Travel-related costs (company car, private car, public transport, bicycle)
Telephone/internet costs (subscription or prepaid)
Office rent
Representation costs (gifts or dinner)
Website creation
KVK registration fee
Invoice collection costs, legal fees in case of lawsuits, notary fees for company formation
Insurance
Subscriptions (e.g., software, invoicing programs)
Detergent/softener for washing work clothes, other cleaning supplies
Subcontractors
Employees
Company courses, further training
Company certifications
Arbeidsbeloning: This is a minimum €5000 annual allowance given to a partner if they help in the business.”
Foreign invoices are also deductible if the purchase/procurement is made abroad. It is worth immediately requesting a VAT-free invoice with the international tax number indicated. If someone buys a tool or machine, it is important that the value of one piece is under €450 so that it can be deducted in the given fiscal year. More expensive items must be amortized.