The VAR seizes to exist as per January 1, 2016. What will happen in 2016?
The VAR is a statement or license to operate as self employed entrepreneur, freelancer or ZZP entrepreneur for other companies. This license will no longer exist in 2016. No more VAR 2016.
Why is the VAR important?
If you work with your company for another company, your client, the other company needs to know if you are a genuinely accepted company by the Dutch tax office. Why does your client need to know that you are a genuine accepted company?
You are regarded a company when you have multiple clients, at least three, and for non of the clients you spend the majority of your time, your work load is more or less spread over these clients. If this is not the case and you only have one client or two clients, but you spend 80% or more of your time with one of the clients, you could be regarded an employee of that client. A deemed employee, as no employment contract has been agreed upon.
An employee is a person that works for a company, is paid for the work done and the company can give specific instructions how the work needs to be done. There is a marginal difference between employment and assignment with this definition. Therefore the Dutch tax office (belastingdienst) investigates the full position of you to assess the status. If you only work for this one company and you make no or little effort to build a client base, then the conclusion could be that you are an employee.
If you are working as a freelancer, ZZP or company your fee or invoice is not subject to social premiums. Over the profit of the company is paid Dutch income tax including general social premiums. However, when it turns out that you are in fact a deemed employee of the ‘client’ you work for, your fee is subject to employee social premiums such as the unemployment premium, disability premium and health care premium.
Why is the tax office so keen on these premiums?
Whether you work as an (deemed) employee or entrepreneur, in the end you do pay income tax. However, only if you are regarded that you are an employee you pay for the employee social premiums. As the Dutch tax office is very keen on obtaining as much employee social premiums as is required, the Dutch tax office evaluates constantly the situation between the freelancer/ZZP and their client.
Why is the VAR important for your client?
Your client is the organization that will be charged with the social premiums due over the net amount (invoice including VAT) paid to you. That invoice is seen as net salary, that amount will be grossed up against the anonymous tax rate, as the employee was not identified. On top of the gross salary is charged the social premiums. Due to the fact that these premiums and wage tax was not properly reported a fine is imposed of between 50% and 100% depending on the situation. This is done for a maximum period of 5 years back. I hope you understand that this will break your client over something that was not caused by them. That is also the reason why you find in most contracts with freelancers/ZZP’er that penalties, tax and social premiums that arise due to this working relation will be charged to the freelancer/ZZP’er.
What will be the case as of 2016?
In 2016 we basically go back to the time before the VAR was introduced. The tax office will assess per situation if it is regarded employment or entrepreneurship. If regarded entrepreneurship a contract needs to be provided to the Dutch tax office. The Dutch tax office will publish this contract and agree that this contract will not be charged with social premiums for deemed employment ship.
Whether you qualify for the entrepreneurs discounts in the income tax return is not related to this contract. So you can be granted this contract, but for the income tax you could still be regarded not to be an entrepreneur. For instance if you do not make 1225 hours as you only started the company in November.
That implies that if you cannot agree with the Dutch tax office on such a contract, that the freelancers/ZZP’er is in fact an employee of the client. Social premiums are due.
Why is this being done?
The VAR statement could be obtained via the internet by simply answering the questions of the form in the way the outcome would be in your favour, despite the genuine situation. A freecard (VAR) was issued in situations that did not apply.
You might know that the TNT package delivery persons, driving a TNT logo van, wearing TNT log uniforms sometimes, only delivering TNT packages are regarded ZZP entrepreneurs. If we would ask you who they were, you would assume they were a TNT employee as that was obvious to you.
The persons who assist elderly at home who are rather ill and in the last fase of their life are regarded employees. However, they have short assignments, every patient as a different treatment and it is unknown how long, when and where, or if there is another patient. This person should in fact be regarded a ZZP entrepreneur instead of an employee.
1 million ZZP entrepreneurs
Another reason for the VAR disappearing is that we have 1 million VAR entrepreneurs in the Netherlands, and the number is growing rapidly. Of that 1 million VAR entrepreneurs 300.000 do not earn more than EUR 20.000 gross profit. This profit is not taxed due to all the exemptions, but neither can this person build up pension rights, as there is simply no money. And no disability insurance can be taken out as that would cost half the profit. These EUR 15.000 result making ZZP’ers should be employees and be protected via paying social premiums.
Orange Tax Services
We can assist both the freelancer/ZZP and the entrepreneurs who hire freelancer services to determine the situation. The Freelancers/ZZP entrepreneur needs to be clear in his or her status. Either you are or you are not an entrepreneur for tax purposes. If you are not, you need to address this well before the end of this year to your client. You can then decide to become an employee of your client. At first glance that might be seen as a set back for you, but fulfilling all the entrepreneurs obligations for just one client can be a lot. And why not benefit from employee protection being an employee.
For the entrepreneur it is key to investigate the status of the freelancers/ZZP entrepreneurs. An active approach is required now to prevent yourself from substantial penalties in the near future.