What are your options when it comes to starting a business in the Netherlands? What additional tax benefits can you get as a newcomer in the Netherlands? Finsens Tax explains.
If you are planning to move to the Netherlands and wish to continue your freelance work or become a new entrepreneur, you probably would like to set up the most tax-efficient business structure.
Having the right business structure
In the Netherlands, the following business structures are mainly used:
- Sole proprietorship
- A limited liability company (the so-called B.V.). This option may allow you to get the 30% tax ruling.
A sole proprietorship is a transparent entity, which means that it is linked to the private owner. The owner is liable for the company’s obligations and taxes. The owner is, after deduction of all costs, taxed for the profit of the company. The taxes are due via the personal income tax return.
Tax credits sole proprietorship
As a sole proprietor, you are entitled to the general small companies discount of 14% of your gross profit. That means that only 86% of your profit is taxed.
The self-employed tax deduction of up to 8.793 euros (for 2021) may also be claimed. For 2021, the self-employed tax deduction is 6.670 euros (plus 2.123 euros is applicable for the first three years). The most important requirement you must adhere to so you can claim the self-employed tax deduction is that you have spent at least 1.225 hours on your business activities in the calendar year. This includes direct working hours but also hours you spend on travelling, market research, administration etc.
With a sole proprietorship, the full profit is always taxed in the same year, which could result in higher taxes than if you were to have a B.V. However, the setup of the sole proprietorship only requires a registration at the chamber of commerce (KvK).
The limited liability company (B.V.) in combination with the 30% tax ruling
You also have the option to freelance through your own incorporated B.V. and pay yourself a salary. This option may allow you to apply for the 30% ruling tax application if you fulfil the general criteria. The liability and taxability by operating via a B.V. are different from operating as a sole proprietor.
The B.V. is treated as a separate entity and has to meet additional requirements, such as filing monthly payroll tax returns, quarterly VAT returns, an annual corporate income tax return and filing the annuals at the chamber of commerce.
Salary obligations of a B.V.
A shareholder of a B.V. who owns 5% or more of the shares is obliged to receive a salary if they perform work for the company. The B.V. is obliged to withhold wage tax on the salary. The obliged salary needs to be determined on the basis of the usual wage rules. This means that the salary needs to be determined on the basis of performed work by the shareholder and has to be at least 47.000 euros gross on annual basis. An exception may apply if the B.V. does not generate sufficient income or the performed work is very limited.
30% tax ruling
The minimum required salary to benefit fully from the 30% ruling is around 56.000 euros. However, the minimum salary to be eligible for the 30% tax ruling application is 38.961 euros (2021). The wage tax rates are the same as the tax rates for the sole proprietorship. However, the effective tax rate may be lower if you are an employee of the B.V. under the 30% ruling application. This is given the fact that only 70% of the salary is taxed.
Here are the tax rates for 2021:
|Box 1 tax rates 2021 (including social security premiums)|
|€ 0 - € 68,507||37,10%|
Additional benefits of the 30% tax ruling
With the 30% tax ruling approved, you can opt for the partial non-resident taxpayer status. If you opt for the partial non-resident taxpayer status, your taxable income from savings and investments in Box 3 will be exempt from income tax. Property that is located in the Netherlands is however always taxed in the Netherlands. Dividend payments received as a substantial shareholder (5% or more) from a foreign entity during the period that you are under the 30% tax ruling are also exempt from Dutch taxes.
After all company costs are deducted, the profit will be taxed. The corporation tax in the Netherlands for 2021 is 15% up to 245,000 euros and 25% if more. The net profit after taxation can be paid out as a dividend to the shareholders whenever desired.
However, if the 30% tax ruling applies, it might be more beneficial to distribute an additional salary instead of a dividend. The dividend tax which the B.V. is obliged to withhold is 15%. Additionally, the dividend payment is taxed with another 11,90% (2021) in Box 2 when the shareholders file their personal income tax return, which makes the total rate 26,90%, The total tax burden on distributed dividends is therefore around 37,87% in the first bracket.
An appropriate alternative
The B.V. structure in combination with the 30% ruling application may be an appropriate alternative if you are planning to start your business in the Netherlands. Especially if you expect to generate a sufficient turnover and expect a growth of your business over multiple years. The B.V. gives also more flexibility with salary payment and dividends. Note that if you choose to start with the sole proprietorship, you would not be able to apply for the 30% ruling application at a later stage.
Are you in need of tax assistance? Finsens Tax provides tax advice at a high level. Contact them now!