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VOF and tax discounts

Combine two one man companies together and you have a so called VOF. VOF stands for Vennootschaps onder Firma. The VOF is a company, a separate tax number is issued for this company, but it is not a limited liability company. The company is transparent, implying each partner reports his or her part of the VOF in full in the personal income tax return.

Why a VOF and not a BV company?

A BV company has a substantial number of obligations to be met, can be experienced as a complex type of company, whereas a double one man company is much more easy to understand. The actual reason is a tax driven reason and this reason is often followed by a married couple or at least tax partners of each other.

What is the case? Both persons are regarded entrepreneur. Not only the profit is split in two, which implies the lower tax brackets apply. Example. EUR 100.000 profit for one person is taxed from about EUR 55.000 in the 52% tax bracket. If you split this profit in two, each partner has EUR 50.000 profit, implying the 42% tax bracket is not exceeded.

Besides the advantage of the lower tax brackets, both entrepreneurs can qualify for the entrepreneurs discount such as the Zelfstandigenaftrek, EUR 7.280 discount per person. In case of a starting VOF, both persons have an additional discount of EUR 2.123 during the first three years of the existence of the VOF. The quick mathematical calculation yields a total discount of EUR 18.806. Which implies more or less the first EUR 48.000 profit of the VOF is not taxed.

I hope you understand the importance of using the VOF vehicle as your company.

VOF orangetax

How does the Dutch tax office respond to the VOF?

VOF and tax. To a genuine VOF the Dutch tax office does not respond at all, it simple accepts the VOF as a company and the tax benefits are known to be used.

However, a non genuine VOF gets the attention it deserves.

What is a non genuine VOF?

A non genuine VOF is a VOF where the living partner of the entrepreneur joins the VOF. So the husband or wife joins the VOF, but this partner is not actually an entrepreneur.

The well known example is the family doctor (huisarts). The family doctor has done the extensive study, followed the courses, has yielded his or her experience and opens his or her own practice. The partner often is not involved, until the moment that the fiscal advantages of a VOF cross the light. The partner does the administration, cleans the office and picks up the phone when the doctor is out for house calls. The Dutch tax office has challenged this type of VOF construction and won. The partner is not a genuine entrepreneur, hence the profit cannot be split 50/50 more like 90/10 and the partner cannot use the entrepreneurs discounts.

Another case, which appealed to me, was that of a company replacing glass windows. The husband and wife were VOF partners and the Dutch tax office challenged this constructions. The case went to court and the judge only had one question: He asked the lady if she ever replaced a window. The answer was no. The verdict was evident, no VOF for tax purposes. The lesson learned in this case is to have your wife replace at least one window.

What is important to know when you start a VOF?

The first thing is of course to know with whom you start the VOF. You have to make joint decisions and you can have an argument once in a while. For this purpose and to be clear about the profit allocation the VOF as a contract, the so called VOF overeenkomst. In that agreement is determined about the capital payments, profit shared and reward paid for the effort made. But actually you should address this agreement as the tool in case you have a fight with your partner, which is rather common.

This soft part of the VOF is often the reason why other partners prefer to have a BV company where the rules are harder and more objective.

Outside VOF result

In the VOF you share with your partner the income and the costs. It does happen that outside the VOF you have costs related to the VOF as well. For instance you would like to pay costs for a certain style of entrepreneurship where the other partner is not prepared to pay for those costs. For instance a company car, company electric bike, more than one mobile phone, these kind of things.

This outside the VOF administration is also transparent and shown in the income tax return.

Orange Tax Service

We never recommend the VOF as we have experienced the business relation going south. If you have a partner, we recommend to use the BV company. If you have a wife or husband that is not actually participating in your company, leave your partner outside the VOF partnership. It will result in tax questions you might not be able to answer. In other words, keep it simple.

Does this post make you want to get in touch? Go for it!

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