As per May 1, 2016 the so called VAR statement is abolished. This implies an entrepreneur is no longer able to apply for such a VAR statement. The VAR statement is a statement issued by the Dutch tax office which states that this entrepreneur is indeed regarded an entrepreneur for fiscal purposes. This article is about VAR versus employment.
Why is the VAR so important?
If the entrepreneur is not regarded an entrepreneur for fiscal purposes, then this entrepreneur is an employee of the client. This implies that the client is liable for wage tax and social premiums over the net value of the invoice issued to this client.
Consequently all clients demand the entrepreneur to provide them with a copy of the VAR statement to limit their liability. No VAR no job. Hence any entrepreneur soon was able to push the correct online buttons to receive the desired result: the VAR statement.
Why is the VAR terminated?
A result of the VAR is that we have about a million so called ZZP entrepreneurs. Entrepreneurs without employees. Of that 1 million about 300.000 earn a lower annual turnover than EUR 18.000. That is a concern for the Government, as these people are not able to take the correct precautions to face the issues in life, such as a pension scheme or disability, simply because there is no money for these insurances.
By terminating the VAR statement and actually taking the relation between the so called entrepreneur and his client into perspective, it is based on the facts either an employment or an assignment. As most relations are nearly identical to an employment relation, but than without the holiday pay, illness pay, unemployment benefit, pension arrangement and disability benefit. Basically at least 300.000 entrepreneurs should become employees.
Is an employment worse than being an entrepreneur / VAR versus employment?
If the entrepreneur insures him or herself for pension and disability, it will soon become clear that these are the most expensive insurances. You can do without the pension, but basically you cannot do without the disability insurance. Based on a mathematical calculation, it soon becomes clear that often an employee has net more in the pocket than an entrepreneur.
Tax benefits for the entrepreneur versus being an employee?
Indeed the tax benefits an entrepreneur has are interesting. A starting entrepreneur has the starting entrepreneurs discount of EUR 2.121 and the regular entrepreneurs discount of EUR 7.260 on top of the 14% small business discount. This makes that about the first EUR 24.000 profit made per year in the first three years is not taxed.
However, in order to be able to apply these discounts, you need to have been an entrepreneur. You can have the so called VAR statement, but that is only for your client. In your income tax return you need to be able to proof you have worked at least 1225 hours as entrepreneur, for at least three clients. If you cannot proof this, you cannot use the tax benefits.
Is it this black and white?
Yes and no. Yes if you have been an VAR entrepreneur for a couple of years and you only worked for one and the same client. No if you started. If you start being an entrepreneur the Dutch tax office gives you basically a three year holiday on the minimum of three clients demand. The logic is that if anybody could start a company immediately with three clients, everybody would. It takes time to build a client base and that time is granted.
Orange Tax Services
We assist all kind of entrepreneurs with their accounting, tax filings and tax questions. We also assist tax residents that have taken up a job with a foreign company, that has no payroll in the Netherlands, who would like to receive a salary income. Feel free to contact us.