Profit income and taxation is about the entrepreneur working via a sole proprietor company or eenmanszaak or ZZP and his or her tax obligation.
Profit income and taxation: preliminary assessment
The preliminary assessment is a very simple tax return you already file during the tax year with the tax office. The result of that tax return is an amount of tax to be paid for that year, based on estimates. The tax office will then issue to you the tax assessment for that year, based on this simple tax return.
The advantage of the preliminary assessment is that:
– you are aware the amount of income tax you are expected to pay;
– you can pay the amount in installments to the Dutch tax office during the remainder of the calendar year.
– pay as you go
Obligation to file a preliminary assessment
The following situation can be problematic for starting entrepreneurs:
The entrepreneur starts his or her activities. The moment the first tax return is filed with a positive result, the tax office becomes aware of the company profit.
The Dutch tax office is concerned you fully spend the profit before you paid the tax. Hence they are keen to collect the tax in time. The moment in their system is shown you have a positive result from the company, the tax office will impose for the same result an assessment for the pending year.
You make EUR 50.000 profit and you are to pay EUR 15.000 tax based on the filed 2019 income tax return. The moment the tax office processes your 2019 income tax return, most likely a 2020 assessment is issued for EUR 15.000 as well.
Most entrepreneurs are not able to pay the tax amount twice. That is understood by the Dutch tax office, hence the EUR 15.000 for the year 2020 you can pay in installments for the number of months that still remain in the year 2020.
File your preliminary assessment in time
In the above example it is very well possible the tax office send you the EUR 15.000 assessment in July and then you only have 5 months to pay in installments. We recommend you to file the 2020 or for next year the 2021 preliminary assessment in January yourself already, so in February the assessment is send and you have eleven months’ time to settle.
Even though this is only the preliminary assessment, if you do not comply you are reminded for the monthly installment amount plus collecting fees. This is not a voluntary assessment.
In the event your expected result is much less or much more, the preliminary assessment can be updated during the year.
Preliminary assessment reduced to nil
The most frequently asked question is if we can reduce the preliminary assessment to nil. We are always concerned with such a request. Will you not make a profit this year? Answer is often, no. Then we ask, how do you then pay your rent/mortgage and groceries? Often we then see a smile, as they are caught.
The questions we ask, are the questions the tax office can ask. The tax office is very much aware of the desire not to pay the tax up front. Especially for that reason the law has changed and a severe penalty (even prison) is set at this time of practice. For both the entrepreneur and the facilitator, being the tax advisor, is this penalty.
We think tax-is-exciting, a tax debt is often not. Especially a tax debt you cannot pay. To avoid that, the Dutch tax office has adopted the pay as you go preliminary assessment. The tax office likes you to pay up front, but in the end you also can see the benefits. By paying the tax as you go, you are very much aware what money you can spend. This gives stress relief.
Sorry for the dashes in the middle of the word tax-is-exciting. Apparently Google has a dirty mind and sees only a three letter word that we refer to when we practice to reproduce ourselves. Anything related to that word is spam, hence this devout solution.