The entrepreneurs deduction is a Dutch tax credit that is very interesting for self-employed or freelance workers in the Netherlands. How does that work?
Entrepreneurs deduction (zelfstandigen aftrek)
The entrepreneurs deduction is a EUR 6.670 deduction that can be used as a tax credit against a maximum tax rate of 43%. If your income does not exceed EUR 68.508 the maximum tax rate against which you can apply the tax credit is 37,1% (2021).
Your turnover/sales is EUR 45.000. You are a type of consultant, so you have little costs. Let us assume EUR 3.000. Then the profit is EUR 42.000. In the income tax return this profit is reduced with EUR 6.670 to a EUR 35.330 taxable profit.
Conditions for the entrepreneurs discount
The conditions for the entrepreneurs deduction is that you spend at least 1224 hours during a calendar year on your company. AND you need to have earned the majority of your income with this company. If you have next to your company employment income that equals or exceed the profit of the ZZP or freelance income. You cannot apply the entrepreneurs deduction.
The 1224 hours – what does count?
The 1224 hours is time you spend on the company. What you think is time spend on your company, is often time spend on your company. For instance the time spend on creating a website, setting up bookkeeping. Creating the logo, invoice. Setting up social media, spending time on business social media. The hours worked.
Court cased have learned that the tax office can challenge your 1224 hours claim in the income tax return. The tax office then demands you to proof them. The silly thing is that any list of hours you make after the year has ended will be denied in court. So our advice is to start instantly with the setup of your company to keep track of the time spend. That you only need to do for the first or second year. After that your profit proofs the hours put in.
Starting entrepreneurs discount (startersaftrek)
In the period of three years that you started the ZZP company or freelance company you have the opportunity to increase the entrepreneurs discount with a starting entrepreneurs discount of EUR 2.123.
The condition is that you have met the criteria of the entrepreneurs discount. And you have not yet already used more than two times this starting entrepreneurs discount in the first 5 years of the start of your company.
Your turnover/sales is EUR 45.000. You are a type of consultant, so you have little costs. Let us assume EUR 3.000. Then the profit is EUR 42.000. In the income tax return this profit is reduced with EUR 6.670 entrepreneurs discount and EUR 2.123 starting entrepreneurs discount to a EUR 33.207 taxable profit.
Small Business discount (MKB vrijstelling)
All selfemployed persons reporting a profit in the income tax return get the 14% tax credit. The self employed persons claiming a loss in the income tax return get a 14% upcount.
There is no condition other than you being an entrepreneur for the income tax return. No minimum 1224 hours or majority of income earned with self employment.
Your turnover/sales is EUR 45.000. You are a type of consultant, so you have little costs. Let us assume EUR 3.000. Then the profit is EUR 42.000. In the income tax return this profit is reduced with EUR 6.670 entrepreneurs discount and EUR 2.123 starting entrepreneurs discount to a EUR 33.207 profit. This EUR 33.207 times 14% is EUR 4.648. The taxable profit amounts to EUR 33.207 minus EUR 4.648 is EUR 28.559.
The conclusion is that being a self employed person meeting the criteria can result as shown in the above example for a EUR 13.441 lower (EUR 42.000 minus EUR 28.559) taxable profit.
Why does this tax credit exist?
This entrepreneurs tax credit was introduced for self employed persons of whom the entire profit is taxed. The full taxation created the situation that the self employed person does not have availability to save for his or her old age. To enable the self employed person to reserve for this, the entrepreneurs credits were introduced.
Tax is exciting
We think tax is exciting and we also get excited about self-employed clients. Are you thinking about starting a company or have you just started a ZPP / freelance company, feel free to contact us to inquire about our fixed fees. And to inquire about the assistance we can provide you with.