New companies often start from home and then one of the first questions asked is which of the home office costs can be deducted. The answer is: none.
Home office costs
The tax office has set criteria that have to be met in order to refer to a home office as a home office that is accepted by the Dutch tax office. The criteria are that you need to have a separate entrance to the office that is not the same as the entrance of the house. There needs to be a separate postbox and bathroom facilities, as if you can rent it out to a third party. I often say to the client “Can I rent that office from you?”.
The response is often that of a rabbit in headlights, who wants their tax advisor to rent an office in their home. The answer is nearly always that I cannot rent the office, as I have to walk through their house, or there are no bathroom facilities.
The criteria set by the tax office are such that nearly no home in the Netherland qualifies for the home office costs deduction.
Can I work from home with no fiscally accepted office?
Yes of course you can. The rule of the tax office is that you can deduct nothing of that office. No furniture, not electricity, telephone, internet etc.
Is it a problem that I cannot deduct home office costs?
Not really. Let us assume you own the house. Then you deduct already the full mortgage from your income tax return. What more can you deduct? Utility costs? Furniture? Both are very much up for debate as how can you allocate the utility costs to the office exactly. And the furniture, is it what you need or is it an extension of the private house furniture?
Home office tax deductible accepted can be a huge pain
Let us assume you do meet the criteria of separate bathroom facilities and entrance of the home office. You purchase the house and now a part of the house you allocate to your company. You deduct the utility costs, you put this part on the balance and depreciate a little. The mortgage costs of this part of the house are in the annual report. All nice.
And then, you stop the company. This is the case when you move your residence to a place outside the Netherlands, or you take up employment and you no longer run the company or you simply deregister at the Chambers of Commerce.
At that moment you need to sell back to yourself the business part of the home you own. As capital gain tax is known for companies, it can cost you much more than you have deducted in the past.
Example home office costs go south
A house doctor in Amsterdam lived on the beautiful dyke in his wooden house and the basement was for his practice. During those days you could put up the full house in the bookkeeping, so he did. The house much have cost then about EUR 100.000. Many years of maintenance deduction and interest deduction went by and then he turned about 30 years later 70 years old. The house was then one of the more desired houses and well worth over EUR 1,5 mln. As he depreciated the house fully, the balance value was nil, the sale value EUR 1,5 mln and 52% tax is due over this capital gain. So he wanted to stop working, but he could not as he could not afford the tax. Only after he decided to sell the house to live elsewhere he could stop the company and pay the massive amount of tax. So the easy obtained tax deduction was paid multiple times back to the tax office in the end.
Orange Tax Services
We try to keep it simple. Simple is not sexy, but it can make your live much more enjoyable. You do not necessarily pay more tax when you do it simple, as following up fancy tax structures often fall short on technical conditions and then more tax and penalties are due.