Frequently asked questions on income tax

Not every side income is a business. The tax authorities look at, among other things, how independently you work, how much you work, whether you expect a profit, what risk you run, whether you are liable and how many clients you have. If you are not an entrepreneur, your income is usually ‘income from other activities’. That is also in box 1, but you do not get the entrepreneur allowance or the SME profit exemption. So it directly affects what you pay.

You meet it if you work at least 1,225 hours a year on your business, on average about 24 hours a week (article 3.6 Dutch Income Tax Act). If you also have a job or other work, more than half of all your working time must go to your business. Travel time to your job counts as time for that job. That makes this condition harder to meet than you might think. Keep track of your hours, otherwise it is hard to prove.

The entrepreneur allowance includes, among others, the self-employed deduction, the starter's deduction, the R&D deduction, the co-working partner's deduction and the cessation relief. On top of that there is the SME profit exemption, a percentage of your profit. For most of the allowance you must meet the hours criterion. For the SME profit exemption you do not. Note: the self-employed deduction and the SME profit exemption have been getting lower step by step for years. And they bring you less than the amount suggests, because they count at a lower rate.

No. Up to and including 2022 an entrepreneur who met the hours criterion could build up a fiscal retirement reserve (FOR). Since 2023 that is no longer possible. If you built up a reserve before 2023, it stays. You still have to settle it later: when you stop your business, when you convert it into an annuity, or when the reserve becomes higher than the capital of your business. Many business owners forget there is still tax on that reserve.

Usually not. First the question is whether your home belongs to your business or to your private assets. If the home with the office belongs to your private assets, you may in principle not deduct the costs of that office (article 3.16 Dutch Income Tax Act). That also applies to energy, flooring, painting and furnishing. There is one exception, and then you must meet two conditions at the same time. The space is a self-contained part of the home, with its own entrance and its own facilities. And you earn an important part of your income in or from that space. A desk in the attic almost never meets that.

You choose that when you buy the car. If you put the car in the business, all car costs are deductible, but you get an addition for private use. That addition is never higher than what the car really costs, and with an older car that makes a big difference. If you can show you drive fewer than 500 private kilometres a year, there is no addition. You do need a good mileage log then. If you keep the car private, you may deduct an allowance per business kilometre from your profit.

The income tax return covers a whole year and in principle must be in before 1 May of the following year. If you work with an adviser, they can arrange an extension for you. Advisers have a special scheme for that, so they can spread the returns across the year. Being late can cost you a penalty (article 67a of the Dutch General Tax Act). If you do not file at all, the tax authorities estimate what you have to pay. You then have to prove yourself that it is wrong.

A BV pays corporate income tax on its profit. What you pay yourself is salary or dividend. For the salary there is a minimum: the customary salary. Dividend falls in box 2. The entrepreneur allowance and the SME profit exemption disappear, because they belong to a sole trader business, not to a BV. Whether switching is cheaper depends on your profit, on what you need to live on and on how much you can leave in the BV. Have it calculated before you switch. Undoing a BV costs more than setting it up.