Wednesday, May 4th, 2016 by Arnold Waal
The Zelfstandigenaftrek is the entrepreneurs discount in the Netherlands. If you start your own company, this tax break is important for you.
If you operate a so called one man company or if you are partner of a so called VOF, then in the income tax return the zelfstandigenaftrek is a tax deduction. The zelfstandigenaftrek is a deduction of EUR 7.280 (2016) which reduces the profit. The criteria for this deduction is that the entrepreneur needs to have spend at least 1225 hours to the company and has generated the majority of his income with this company.
The zelfstandigenaftrek is an old deduction that was introduced for entrepreneurs to shield the full amount of profit from taxation. By not taxing the full amount, the entrepreneur has a budget to take care of his old age pension. This does still apply today, but is forgotten by most politicians, hence the zelfstandigenaftrek is referred to as a cheap subsidy by the Dutch Government, and that is not the case.
Startersaftrek – Starting entrepreneurs discount
If you started your one man company or VOF then you have the possibility during the first five years to increase the amount of the zelfstandigenaftrek with the startersaftrek, being an additional EUR 2.123 deduction. The condition for this startersaftrek is that you were entitled to the zelfstandigenaftrek. The startersaftrek can be used max three times during the first five years of the start-up of the company.
Startersaftrek – random depreciation
In the years that you as one man company or VOF can use the startersaftrek, you can also depreciate your investments randomly. The fiscal depreciation of investments like computer, company vehicle, office furniture, anything exceeding EUR 450 ex VAT of which you have become the owner, is 20% per year, regardless if the live expectancy of for instance a laptop is less than 5 years. Software is given to you in license, hence no depreciation here, it is a full cost.
If you are in the startersaftrek years you can depreciate randomly up to a maximum of 100% of the investment. The thought is that in the start up of your company you have not much funds. If you then purchase a computer for EUR 2000, but you can only deduct max EUR 400 from your result in that year, you pay tax, whereas you have no money as that went into the computer. In those years you can depreciate the computer for EUR 2000. Obviously in the following years you have nothing to depreciate anymore related to this example computer.
Random depreciation does not imply that 100% deprecation is always the best option. The bigger picture, the result, the expected result in following years, determine what is best to be done in this respect.
Zelfstandigenaftrek – being challenged by the tax office
The tax office is keen to deny the zelfstandigenaftrek, as that generates more income tax. It can happen that the tax office sends a letter to the entrepreneur to proof the hours spend. It even happens that the tax office comes to the house of the entrepreneur as a friendly visit. It is indeed intended as a friendly visit, but often the tax office then has an opinion from what they learn from the entrepreneur, that no zelfstandigenaftrek is applicable. Please note that this is their opinion and your tax advisor might very well have a different opinion.
There you are, with a letter from the tax office in which you are requested to proof the 1225 hours spend on your company. You make a list of the hours spend on the job, on getting clients in the first place, the time spend on developing the company, creating the website, stationary, visit meet and greets. Sometimes you spend time on quotes that were not accepted by the potential client, or the client was not in the office when you went there for a meeting.
All this time is time you spend on your company, hence time that qualifies for the zelfstandigenaftrek.
Then the tax office makes the statement that you drew up the list retro actively and they deny the list. As if any entrepreneur keeps track of the hours spend, well lawyers and tax advisers may do so, but the ordinary plumper does not.
Electric piano man
In 2011 a man started his one man company repairing electric piano’s. His 2011 income tax return was filed with the zelfstandigenaftrek and we assume also the startersaftrek. The tax office challenged the zelfstandigenaftrek and asked him to proof the hours spend.
So he made a list of 216 hours invoiced, 420 research hours, 244 psychological hours (?) and 600 hours spend on the society (?). 1.480 hours in total. The tax office denied this proof, as the list was made after the year had finished and was rather global, not specific enough.
The The Hague court ruled that an overview of the spend hours can be made retro actively, of course. However, the overview was indeed not specified enough, hence the zelfstandigenaftrek was indeed denied. By already solving the case on the global method of measuring, the rather unorthodox psychological and society hours spend was not under discussion.
Orange Tax Services
We assist a substantial amount of entrepreneurs with their accounting and tax filings. Part of that is the strategic use of the zelfstandigenaftrek and basically this is only a discussion during the set up fase. After that, when the company is a genuine company, the topic is not under discussion, but simply used to reduce income tax. We will be glad to assist you in your set up as well.