A company is subject to income tax. But what if the company is not regarded a source of income?
In this time of age a lot of starting entrepreneurs indicate themselves as start-up company. Basically it is a starting entrepreneur. Regardless how you refer to yourself, if you start a company you will not be instantly successful.
What if your company is never successful?
If your company is never successful, then for Dutch income tax purposes this is not a company but a hobby. Is a company a source of income? When that is the case the loss is tax deductible. A source of income can be a source of loss at the start, as long as the coming few years show the possibility of a taxable profit.
No source of income
A creative starting entrepreneur claimed to have a company, but made only losses. These losses were set off in the income tax return against positive taxable income of previous years. A tax refund is the result. The tax office argued the company.
The company was a information portal where recruitment for the food and beverage industry. Even though the site has had 238 visitors in the period of 2011 to 2014. Non of these visitors created any turnover with this portal. As there had not been any turnover, nor was it likely soon any turnover would be created, the tax office successfully argued for court that this was a hobby.
The consequence of the portal being a hobby is that it is not a source of income. The results is that the losses claimed were nullified. No tax refund.
Price winning filmmaker without turnover
In another situation a filmmaker was creating documentaries for many years without them yielding any income. The tax office denied the company being a source of income. The filmmaker argued in court that it was a company. He had won a price in 2011 for one of his documentaries. That was indeed true, but even the price winning documentary did not yield any income. The claimed losses over the period from 2008 till 2015 were nullified.
How should you claim the loss of a so called start up?
In our opinion you need to follow your dream, so you have to start the company you think will bring you income. The chance exists it will not and then it is a hobby. If you set up a so called one man company you do not need to report this as a company for income tax purposes. So you can first start and see where it goes. If at the end of year two the prospect of turnover exceeding the costs is very likely, you report the company retro actively with the Dutch tax office.
This has of course only purpose when you kept good track of the costs made in a bookkeeping from the start.
Orange Tax Services
We can assist you with your new company. There is more to it than only income tax. For the Value Added Tax legislation it is not that relevant you are creating a source of income. From a VAT perspective you are already subject to this tax when you compete with other companies.