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FOR – Fiscal Old-age Reservation business owner

In the Dutch personal income tax return you can claim tax deductions. Being an entrepreneur you can claim more types of tax deductions, but being able to claim one, does not necessary imply it is a good thing to claim such a tax break. The FOR is an example of one tax deduction you should not use.

When you as owner of the one man business (eenmanszaak) are running a successful company, there is personal income tax to be paid at the end of the year. The company profit is already reduced with the entrepreneurs discounts such as the zelfstandigenaftrek (EUR 7.260), startersaftrek (EUR 2.121 starting entrepreneurs discount, only during the first 5 years of your existence for a max period of three years). The profit after this deduction is reduced with 14% MKB vrijstelling (small business deduction).

FOR allocation reduces income tax base

This result is processed in the income tax return and even then you can reduce the taxable profit with a FOR allocation. That implies that you deduct 10.9% from the taxable profit with a max of EUR 9.542. A substantial discount, nevertheless we suggest you should not use this discount.

The assumption made in this case is that you, the entrepreneur, use the amount deducted under the FOR name for an actual pension insurance premium with an insurance company or keep the amount in a separate bank account. Our experience is that no entrepreneur does this. It is seen as another discount.

Small example, the entrepreneur has the possibility to deduct in his income tax return for FOR during a period of 20 years EUR 9.500 per year. That is EUR 190.000. The moment the entrepreneur decides to stop, or is forced to stop, or goes bankrupt for some reason, at that very moment the income tax over the EUR 190.000 is due, which is of course 52% being EUR 98.800 to be paid within 6 weeks time. This is only different when you either purchased pension rights during the past 20 years with an insurance company, or the EUR 190.000 is used at the moment of termination of the company to be paid to a pension insurance company.

Experience learns that the entrepreneur was not aware or states not to have been aware of this obligation, hence nothing was done in the past, no money is available at present, implying the tax office will demand from the entrepreneur to sell belongings (house, car etc) to pay for the tax. The FOR can become ugly, hence we recommend not to use it.

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