Polish handyman taxed in Poland?

handyman taxed in Poland?

The place where a company is taxed depends on where the owner or managing director of this company is a tax resident. Or is it, thought this handyman taxed in Poland.

Handy man taxed in Poland?

A person is a tax resident in the country where he or she has its central point of life. That is how article 4 of every tax treaty states it, more or less. What is your central point of life? Your central point of life is where you work, sleep, buy your groceries.

However there are some exceptions. One of them is when you own your home in the Netherlands. Your tax partner does stay there but you are working and sleeping in another country. In that case you remained a Dutch tax resident as well.

The Polish handy man taxed in Poland? – court case

A Polish handy man owns a Dutch company registered with the Dutch Chamber of Commerce. The Dutch tax office does an audit with the company. The result of this audit is for the years 2013 and 2014: additional income tax, additional value added tax, penalties and interest is to be paid.

The Polish handy man argued that he is not at all a Dutch tax resident. He lives with his wife and children in Poland.  Actually his coworker, not employed by him, not partner in the company, in this case called Mr Y, is the owner of the company. The Polish handy man is only on paper the owner, but Mr Y is the true owner as he can speak Dutch.

Mr Y has done all the administrative transactions, opened a bank account for the company, obtained the Value Added Tax number, signed the contracts. All things the Polish handy man states he cannot do as he cannot speak, read or write Dutch.

Polsh handyman taxed in Poland?

The court ruled that the Polish handy man was owner of and running the Dutch company. Mr Y was indeed on contracts, but Mr Y should be seen as intermediary, contact person. Not the actual entrepreneur. The court did not believe Mr Y opened a bank account in name of the company of the Polish handy man as the checks and balances in this procedure does not permit that. The same with the application of the VAT number.

The Polish handy man was therefore liable for the results of the audit.

Tax is Exciting

We think tax is exciting. With respect to the court case: you cannot run a company in the Netherlands if you are not a Dutch tax resident.

This question is asked to us so many times per week. I think that is caused by the fact that the Netherlands is labelled as a tax heaven in the world. But everybody that lives, works and pays tax in the Netherlands knows it is not heaven at all.

A company is a source of income, not loss

A company is a source of income

A company is a source of income, not loss. If the company is a source of loss the phrase company should be replaced by hobby.

A company is a source of income

It does happen that a new client arrives at our office. This client is proud to state they have a company. A healing company, part time piano teacher, yoga enterprise, homework assistant, doggy doggy walky walky and more creative types of companies.

With the aforementioned examples of companies the previous income tax returns contain cost deductions that exceed what is possible. Part of the home rent costs, electricity, new stairs, house extension. Strangely enough, the tax office never inquired about that.

The explanation for the tax office not to respond was also at hand. The income of the company was far exceeded by all the costs of the company. Actually, if all the costs would have been deleted that are not accepted, the company still had a loss. This was the case for a couple of years already.

Response tax office to company that is in fact a hobby

Upon our findings the new client always responds that this is how they have done it for many years. No issues with the tax office. That is true, but that is not the same as a correct income tax return. The fact that the tax office did not respond had to do with no other source of income.

The moment you have employment income next to this hobby, then the hobby creates a loss. This loss is set off against the positive employment income resulting in a tax refund. Then the Dutch tax office is going to respond quickly.

Most clients with a hobby have no other source of income, it is the partner who funds it basically.

What is the difference between a hobby and a company?

An activity is a company when it participates in the economic traffic. In other words, there are sales and purchases. Commitments. The activity is a company when the aim is to make an income, a profit. And finally, from an objective standpoint a profit is likely to be made.

The moment these three criteria are met, you have a company. And ofcourse nobody expect you to be profitable instantly. That said, if from an objective standpoint no profit is to be expected. Then the activity is labelled as hobby. An hobby is often an activity with costs and pleasure, where the income is often less important than the pleasure.

What to do when you are told your company is a hobby

The moment the conclusion is drawn that your activity is a hobby. The first step is to terminate the registration of the company with the KVK (Chamber of Commerce). That will also stop the request to file an entrepreneurs income tax return.

Explain to the tax office that the VAT numbers should be cancelled.

A company is a source of income
A company is a source of income

Hobby – court case

A nail polish BV company has not made a profit since 2013. Due to a transfer of shares the tax payer claimed a loss in his income tax return. This loss was denied by the Dutch tax office.

The case went to court and in court it was determined that the BV company did take part in the economic traffic. A profit was the goal of the company. But the objective eye quickly came to the conclusion a profit was never going to be possible. Hence the court ruled indeed that the BV company loss was not to be deducted in the income tax return.

The tax payer did proof the turnover was increasing, but the turnover could not keep up with the costs. Also the argument that companies such as Rituals, McDonalds and Amazon were loss making in the startup years did not stand. This argument did not stand as it was not made clear how the situation of those companies reflected on this case.

A BV company can ofcourse not be allocated as a hobby company. That said, the execution of the tax return is done as if it were a hobby. No tax base, no tax deduction.

Tax is exciting

We think tax is exciting. Challenging is to explain to a new client that their activity is in fact not a company, but a hobby. This is never digested well and takes some time for the client to accept.  Plus, the client finds it very strange no longer to report the company tax wise. Despite we are excited about tax, a hobby is a hobby.

Entrepreneurs health care insurance – what is that?

The entrepreneur health care insurance, collected by the Dutch tax office. Does that imply I no longer need to take out one myself?

Entrepreneurs health care insurance

In the Netherlands all residents need to have a health care insurance. Often this is a Dutch health care insurance. However, if you are for some reason socially insured in another EU country. You show the so called A1 statement to the Dutch SVB. The SVB is this institute that is in charge of the collection of the social premiums. Then you do not need to have a Dutch health care insurance.

If you lack to take out a health care insurance, then the CAK will send you a letter. The CAK is the administrative office of the SVB. This letter demands you to take out a health care insurance within three months of the date of that letter.

Health care insurance fine

The moment you do not obey the demand of the CAK, the justice department via their administrative office the CJIB will send you a EUR 437,25 penalty. And another one the next month.

The third month you will not get a penalty, but the CAK then assigned a health care insurance to you.

Dentist could be coverted by the health care insurance

How is the health care premium paid?

The health care premium is in fact charged to you two times per month. One you are in charge of, the other one you are not aware of.

The one you are in charge of is the one you took out yourself. For instance if you are a single man or an older couple we can only assume you do not need the services related to pregnancy. So you chose an insurance without these facilities. In other words, this health care insurance you can customize.

The unaware premium is paid by your employer or your pension organization. Your employer pays directly to the Dutch tax office the monthly amount related to your salary. In the old days this was shown on the salary specification. The amounts are now so high, to keep the peasants unaware, it is no longer shown.

Entrepreneurs health care insurance

The entrepreneur has no employer. Still the entrepreneur also needs to pay for the health care insurance two times.

The one time is identical to the situation of an employee, the entrepreneur takes out a health care insurance him or herself.

The second payment is made via the income tax return. The entrepreneurs income tax return always show two amounts to be paid. One amount is the income tax, the other amount is the obligatory health care insurance.

The most common response we receive from entrepreneurs is surprise. Instantly the idea grows that if the tax office charges them already with health care insurance, they can cancel their own paid health care insurance. Then we need to explain that this is not possible. Confusion all over the place.

Tax is exciting

We think tax is exciting. Paying for the health care insurance is an obligation. We understand that entrepreneurs are confused that their tax bill also includes health care premium to be paid to the Dutch tax office.

Entrepreneurs preliminary assessment: in general very much disliked

Can you help me with my BV company?

The entrepreneurs preliminary assessment is in general the most disliked document the tax office can send. What is that about?

Entrepreneurs preliminary assessment

The calendar year has just started, it is now January 2022, and you already receive a blue envelop. The blue envelop is a message from the tax office. Like the very purple envelop is from the CJIB, the bureau of speeding tickets (I have been told of course). Now the Chambers of Commerce also uses purple, so I hardly dear to pick up the mail these days.

You open the blue envelop and you see you need to pay an amount in tax. That can spoil an entire day is my experience. It is the upfront 2022 tax assessment. You have not earned a dime yet and you are to pay the tax already.

Entrepreneurs preliminary assessment

A side note – mind scams

The fact that the CJIB, chambers of commerce and the Dutch tax office send message via regular mail using these colors, implies no email messages are send. If you receive an email message, or silly computerized phone message that you have outstanding debts with either of these organizations. This is a scam, not true, do not ever pay. If you are in doubt, contact us or the origination it concerns. Never use the contact details presented by you by this scamming organization

Instant response to tax assessment

The instant response to the above tax assessment is to ask your tax advisor, that will be us, to nullify this assessment. As this behavior was anticipated by the Dutch tax office, some measures have been taken by te Government to prevent that.

First you cannot appeal such an assessment, you can only file another preliminary assessment request. Neither can you call the tax office to have it changed. So obstacles have been put in place to stop you from paying.

Second, the law has changed on a minor details, with huge consequences. If you, for the purpose of ease, nullify this assessment. The moment the year ends and it turns out you should have paid more or less the amount of the preliminary assessment, you committed a crime. A crime for which you can be penalized obviously.

Why is this assessment send now already?

If you would have been an employee, you are paid a salary. You are not paid the gross salary, but you are paid the net salary. Why are you not paid the gross salary? The Dutch tax office recognize you as a human being, a human being will spend the full amount of the gross salary. Then the end of the year is there, and you are to pay the tax over your salary and there is nothing left to do so. Hence you are paid the net salary.

This principle the Dutch tax office also would like to put on the entrepreneur. Pay as you go. If the assessment is settled by you in 12 months period, it could work out like the situation of the employee.

What if your result for the coming year is very much different?

You are the entrepreneur, nothing is a given in your world. Suddenly a pandemic happens and there is not more business. Then you can send in the request to nullify the result. A very understandable situation.

However, during the year it turns out the pandemic did not hit you at all. Even better, your result is higher than previous years. Then you cannot sit on your hands, but you need to send in the same form, but now with the predicted result.

Tax is exciting

We think tax is exciting. This preliminary assessment is an event. Some entrepreneur accept, some do not. We are asked to reduce the amount and at the end of the year the same entrepreneur has to pay a substantial amount of tax, but has no money. That is exactly what the tax office would like to prevent. The preliminary assessment tries to moderate the liquid position of the entrepreneur, which is a good thing.

Company investment tax credit

The company investment tax credit is a teaser for companies to make investments. Investments are good for our economy, hence the tax credit

Company investment tax credit

An investment equals a cost made by the company exceeding the amount of EUR 450 excluding VAT. The cost is related to material, like computer, desk, chair and what have you. Other costs, like those of subcontractors, rent etc. is not regarded an investment.

Software is out of the ordinary. Most companies pay for a software license or subscription. That does not make them owner of the software, only user. That is not an investment.

How does the company investment tax credit work?

The company makes the investment and keeps track of that. If you invest less than EUR 2.400 you have no deduction. Investing more than EUR 2400 but less than EUR 59.939 (2022) you get 28% over the total investment value as deduction.

When you invest over EUR 59.939 but less than EUR 110.998 your deduction is EUR 16.784 instead. That implies you invest EUR 59.940 you get EUR 16.784 deduction or if you invest EUR 110.900 you get EUR 16.784 deduction.

Between EUR 110.999 and EUR 332.994 the EUR 16.784 gradually reduces. Above EUR 332.994 no investment credit is paid.

Company investment tax credit

Example

The company invests in EUR 3.000 excluding VAT. That is more than EUR 2.400 which implies over the full EUR 3.000 28% investment credit is allocated in the corporate/personal income tax return.

However, the investment itself is subject to regular accounting rules. That implies the EUR 3.000 is to be depreciated over a 5 year period.

Which investments are excluded from this discount?

The company car, with the exception of the full electric or liquid hydrogen car. This type of car has more tax facilities, such as the MIA and the random depreciation possibility. Mind the conditions that need to be met.

No investment credit for housing, ground costs, animals, ships, representative made costs, shares/bonds, receivables, goodwill or federal permits.

No investment credit for investments that will be rented for more than 70%, or personal goods transferred to the company. Nor investments made with family.

Company terminats/stops. What happens then?

The company invested in a EUR 3000 laptop in November and in February you decide to close the company. What happens with the investment?

In the year purchasing the laptop, the laptop is processed as normal. However, in February the company is closed and that implies the laptop is to be sold to yourself against  the economic value. Moreover, the investment tax credit will be made undone partly via the income or corporate income tax return. The value of this laptop is to be determined within reason. Reasonable is probably not EUR 100 for the laptop. The tax office does make inquiries especially about these aspects during an audit.

Tax is exciting

We think tax is exciting. Assisting you with optimizing your income tax return is our standard. This implies the investments of your company are taken into account. Please connect to us if you like assistance with your 2021 entrepreneurs income tax return or your 2021 corporate income tax return.

Entrepreneurs willing to Invest a fortune to save income tax

Difference employment versus self-employed: disability insurance

Entrepreneurs willing to invest a fortune to save income tax is what we come across daily. Is this placing the horse behind the carriage?

Entrepreneurs willing to invest a fortune to save income tax

As the calendar year progresses some entrepreneurs see their profit growing. Initially joy comes across their mind, but if you mingle a lot with native Dutch, the tax impact result could darken your happy thought. Statements like: “you probably pay half to the tax man”. Or “why work so hard if the lot goes to the Government”.

Do I pay too much tax, you think

We have tax brackets in the Netherlands. Officially two, but actually three. The one you do not see is the social premium bracket. The low bracket of the two goes to about 38% income tax. The moment you start to earn a profit exceeding roughly EUR 70.000 you pay over that excess 49,5% income tax.

Before the entrepreneur gets to these taxable profit amounts, the company profit is reduced with tax credits. The entrepreneurs credit, starting entrepreneurs credit and small business credit. Then if the company makes investments and criteria are met, then 28% of these investments also result in an additional credit.

entrepreneur
Entrepreneurs willling to invest a fortune to save income tax

How to reduce the taxable profit even more

This is the question we receive a lot. Then we learn the entrepreneurs willing to invest a fortune to save income tax is the matter. When these investments are necessary for the company anyway, this is perfect. If not, then not.

Example

The company is expanding and a EUR 10.000 desk is required. The desk is purchased on December 1. The entrepreneur that actually needs the desk, purchases the desk. The entrepreneur that not necessarily needs a desk contacts us. “Will my profit be reduced with the investment of EUR 10.000 in a desk”.

Yes it will. The desk is an investment for which in the income tax return an additional 28% over EUR 10.000 can be deducted. The desk being an investment also implies it needs to be depreciated over a 5 year period. From experience I can state the desk has no more value after being used in the office in 5 years time, hence no rest value. That implies a EUR 2.000 depreciation per year. In the year of purchase the deprecation is only for 1 months, as the desk was purchased on December 1. That implies a EUR 167 reduction of the profit.

Entrepreneurs willing to invest a fortune to save income tax

Spending EUR 10.000 in costs only to pay less tax results in EUR 167 lower profit. This is silly if the company does not really need the investment. The investment was only made to reduce tax. If you need an instant reduction of the profit, you should not make investments, but costs. Costs are expenditure less than EUR 450 excluding VAT. These reduce the profit instantly.

If you make EUR 450 costs, the tax you save is either EUR 171 (38% tax rate) or EUR 223 (49,5% tax rate) it is like putting the horse behind the carriage.

Why not aim to pay more tax?

The saving costs to make more profit is a managers philosophy.  We know entrepreneurs as individuals that prefer to spend more on advertising to make more profit. Pay more tax.

Making an investment to create more turnover is not only about paying more tax. Increasing the result implies genuine investments can be made. Investment such as more staff, bigger office, more exposure. That leads to even more result and indeed more tax. The more you earn the more you can spend.

Tax is exciting

We think tax is exciting. We will be excited to explain to you which costs are tax deductible. More exciting is to support you in getting the best out of the entrepreneur to yield a higher result.

Employment versus self-employment?

A company is a source of income

Employment versus self-employment. The Dutch Government supports employment. Sometimes you think you work with an employee who turns out to be self-employed.

Employment versus self-employment

The ever ongoing battle the Dutch tax office has is about being self-employer or not. The Dutch tax office has the opinion that if you have only one client, you are a deemed employee. The Dutch chambers of commerce supports the Dutch tax office and denies a registration if you expect only to have one client. In international situations we disagree with that Chambers of Commerce view. And the tax office does support us, from an international point of view.

Examples employment versus self-employment

Then we have the Dutch situations. A DHL package person rings your doorbell in a full DHL dress code (jacket, cap) and drives a DHL van. So this must be a DHL employee? Indeed, this person is self-employed.

An employee gets a salary, needs to perform labour under instructions and has to do this in person. You would assume the UBER EAT person at your door bringing a delicious meal is an employee. But is not.

The nurse that is planning his or her own agenda, has temporary assignments to very ill persons. A very uncertain period of time, as the person is so ill and can soon die. No instructions are given. The nurse has to decide on the spot based on experience what is the best method. The own car is the transport. Private clothes are the outfit. You would assume this is the example of a self-employed person, but this person is an employee.

The Postnl person must be clear to you. Postnl, the official postage page. Beautiful van stickered with Postnl logo and name. Postnl dress code. Indeed, not an employee, but self-employed. Isn’t that strange? You see Postnl, it behaves as Postnl so you assume this is Postnl employee, and it is not.

Court case

A woman worked for a TV station ‘Omroep Gelderland’. She announced the programs. That implies clear instructions were given what to say, how to say it, when to say it, for which a reimbursement was paid. A clear employee situation you would thing.

Then Omroep Gelderland no longer needed her services and simply stopped paying  her. She went to court claiming that an unlawful dismissal of employment has taken place. She claim continuance of her salary.

The court ruled that no employment agreement was signed. She did not take part in the company, like not attending meetings. The court acknowlegded the fact that all the employee could say on behalf of Omroep Gelderland was monitored by the editorial board. The court ruled she was independent in her work.

No employment was in place, the Omroep Gelderland has followed correct procedure.

Tax is exciting

We think tax is exciting. We can also get excited about straight rules. Clearly on the subject of employment of being self-employed it is not clear at all. Should anyone, like the Chambers of Commerce, state to you that your one client abroad makes you an employee, please contact us. We disagree with that view.

Starting a company

Starting a company was a good idea at the time, but now you need to start doing a bookkeeping. What is involved, how should I do that, which app to use?

Starting a company

Starting a company is not complex. You think of the economic activity you want to pursue and that you announce with the Dutch Chamber of Commerce. The Chamber of Commerce informs the Dutch tax office, the Dutch tax office provides you with the Value Added Tax number and the filing obligations.

Value Added Tax

The Value Added Tax is a sales tax you charge to companies and private individuals in the Netherlands. In the European Union you do the same, unless the EU company you provide a product or service to, has a VAT number themselves. If that number is part of your invoice, you can charge 0% VAT to that EU entrepreneurs. The individuals and companies outside the EU you charge no VAT.

If you charge more than EUR 10.000, excluding VAT, annually to private individuals outside the Netherlands, inside the EU, you need to charge the local VAT rate. That implies in every EU country you need to investigate what is the VAT rate. Is that the VAT rate that applies to your product or services. Then you can report the VAT in each EU country, or you can opt for the OSS system (one stop tax office) where you report all in the Netherlands.

The most common misunderstand we come across is the starting entrepreneur not filing the VAT return. The reason for not filing is that no turnover was made yet. The misunderstanding is in the filing obligation. The VAT return needs to be filed, with or without turnover. Most likely you even get a refund for the Dutch VAT you paid for costs made to set up your company.

Bookkeeping

Most people do not get excited about doing bookkeeping. Then again, if you look at TV programs where famous cooks help a loss making restaurant, or famous entrepreneurs helping loss making companies. The first question they ask is about the bookkeeping. Show me the books.

The bookkeeping is a fundament of your company. You need to know your numbers. You can hire an accountant or bookkeeper, still you need to know your numbers. It can help you. If you think a certain service is good for business, the bookkeeping can proof you wrong.

We understand that still you might not get excited about doing the books. We work with exact online. A well-known system that makes it easier for you and us. Moreover, used by many accounting offices. In case you want to transfer from one accounting office to another, the new accounting office simply logs on to your still existing Exact Online environment.

Tax support and more

Our core business is helping companies and individuals with the tax obligations. With respect to the company, the bookkeeping, annual report, VAT return is part of our services.

More to that services is the experience we like to share with you. A lot of entrepreneur challenges come at you. You might wonder what is best for you, if you should pursue something. What are the future (tax) consequences of certain actions taken now. We serve and have served many companies, hence we are aware of many aspects that are involved with being an entrepreneur. That knowledge we also share with you. Part of the deal.

Tax is Exciting

We think tax is exciting. We are excited to assist your company with our tax services. Our aim is to process the books efficient and correctly. Meet deadlines. And to meet you, via zoom. Please connect to us and the bookkeeping team is eager to have a zoom meeting with you.

1225 hours

Entrepreneurs deduction (zelfstandigen aftrek)

1225 hours is a number entrepreneurs or to be entrepreneurs are very much aware of. But is it well understood by the entrepreneurs? We think not.

1225 hours

1225 hours is a full year half day work, or working full time for half a year. What can this bring the entrepreneur? Indeed, the entrepreneurs credit. The zelfstandigenaftrek or entrepreneurs credit amounts to EUR 6.670 (2021) and is deductible in the lowest tax bracket.

In addition to the entrepreneurs deductions, starting entrepreneurs can have a EUR 2.123 (2021) starting entrepreneurs tax credit.

These two tax credits reduce the profit from the company. After these deductions the small business deduction (14%) is calculated. Should you have made a loss, then the entrepreneurs deduction and starting entrepreneurs deduction are not taken into account. In other words, they will not create a larger loss. The Small business discount will then become a Small business upcount. This loss will be made 14% smaller.

What is misunderstood about the 1225 hours?

The 1225 hours is a number claimed by the entrepreneur, and the credit is assumed to be available. However, the tax rules dictated that you need to have spent the majority of your time on the company. Here it goes wrong.

A number of entrepreneurs contact us to claim the 1225 hours deduction. However, they are at the same time full time employed next to this company. Or they earn much more income with the employment, than with self-employment.

If you have a full time of 32 hour or 24 hour employment contract, the tax office is not willing to accept that you have spent next to this employment 1225 hours on your own company. Moreover, if you do make that statement but you earned much less income with being self-employed than the employment, the credit is still being denied.

Entrepreneurs deduction (zelfstandigen aftrek)
Entrepreneurs deduction (zelfstandigen aftrek)

What is the correct 1225 hours rule?

The correct 1225 hours rule is that you spend at least 1225 hours on your company and the majority of your time you spend on the company. The majority of your income you earned with your company.

How to specify the 1225 hours?

Often a calculation is offered to us with the total of 1225 hours. That is a bit tricky. When the tax office shoots 1 hour, you no longer qualify. Plus making a calculation that arrives exactly on, or just over the number looks fabricated.

The tax office often challenges the number of hours worked. You need to proof the number. The strange thing in this respect is that when you create a list of hours worked after the year has finished. Basically, upon request of the tax office. Such a list is always denied as evidence. You need to keep track of the hours during the year you are working on the company.

Tax is exciting

We think tax is exciting. We are excited about the limited number of tax credits we do have. One of them is the entrepreneurs credit for which you need to meet a condition being the 1225 hours spend on your company. What is overlooked by most entrepreneurs, but also by tax specialists, is that the rule of the hours states that you need to have spent the majority of your time on the company. Next to an employment that often consumes already the majority of the hours, you cannot have spent 1225 hours on the company. And if you do, make sure you have proof ready for examination.

Deductible costs – What is tax deductible and how does it work?

deductible costs

When you move to the Netherlands you often hear people mentioning tax deductible costs. The most common deductible costs are mortgage interest and study costs. However, there are more deductible costs and you of course do not want to miss out on deductible costs, so please continue reading this article.

How do deductible costs work?

Deductible costs reduce your taxable income, meaning that less tax is to be paid over your income.

If you work for an employer, your employer is already withholding wage tax over your total income. Your employer does not take into account tax deductible costs, this is done when filing your income tax return.

In the income tax return you will state how much deductible costs you had during the year. The income against which you set off the deductible costs was reported by your employer. Your employer already withheld the correct amount of tax for you. If you now reduce that income with deductible costs, too much tax was withheld by your employer. That amount is then being paid back to you.

Deductible costs – What is tax deductible and how does it work?

What costs are tax deductible?

The most common deductible costs are:

Mortgage interest deduction

The costs related to the loan taken out to purchase your main residence are tax deductible. You can deduct the mortgage costs for the period that you live in the property.

In the year of purchasing your property, you can also deduct some of the one off financing costs, such as notary costs relating to the mortgage, mortgage advisor, translator for 50%, appraisal costs, technical inspection costs and mortgage guarantee.

Study cost deduction

Not all studies are tax deductible though. Only studies that increase your job opportunity are tax deductible. For instance, if you would like to learn Spanish so you can speak Spanish on your Spanish holiday, this is not tax deductible. Even if you are for instance planning on becoming a Spanish teacher, not deductible as the Spanish language is too generic. Jurisprudence has learned that the three types of Japanese language could result in a deduction.

The most common study cost deduction is the MBA education that costs a fortune. Please note that there is a maximum per year that you can deduct (EUR 16.000).

More importantly, after 2021 there will be no more study cost deduction. That will be replace by study cost subsidy. Currently it is unknown how this will look like.

Medical cost deduction

The medical cost deduction is a hot item in the income tax return. Till we explain the rules, that is.

The Dutch Government wants to prevent every human being, being a Dutch tax resident, to claim aspirin. Hence there is a threshold of 1% of the combined income. Combined income is your income and that of a possible tax partner.

Not deductible are the own risk amounts and the health care insurance premiums. Neither is deductible are treatments not done by a recognized doctor or recognized institute. Obviously you cannot claim costs already reimbursed by the insurance company.

Our experience learns us that the rules make most people not qualify for a deduction. In case of an deduction, the tax office always makes inquires about two years later. Then you need to show the receipts etc. Could cause an additional headache.

Charity donations

Charity donations are tax deductible if more than 1% of the combined taxable income is donated, with a maximum of 10% of the combined taxable income.

Church donations are for us the most common donations. Some have a monthly donation to a charity organization, but the combined donations often do not exceed the threshold.

Part of the tax return obligation is to provide the RSIN number of the charity organization. International organizations often do have a Dutch RSIN number.

When you donate to a so called ANBI (algemeen nut beogende instelling), you are allowed to deduct your donations for 125%.

For donations set via a notary five year agreement there is not threshold of 1%.

Alimony payments

Alimony is a moral obligation to support the former married partner. Moral is good, contract is better. The Dutch tax office wants to have confirmed in a divorce agreement that the one partner is supporting the other.

Paid alimony is a deductible in the one tax return, but a taxable income in the other tax return. Hence the person deducting needs to provide correct address details etc of the partner for whom the alimony is deducted.

The problem with alimony is the house. If both partners own the house and only one partner stays in behind. This one partner can only deduct for his or her ownership the mortgage interest. Often 50%. When the divorce agreement does not state anything about the mortgage and how that is handled, 50% of the bank interest will evaporate as a deduction.

Tax is exciting

We think tax is exciting. We are also excited to claim tax deductions for you. As you might have read above. The Dutch tax office does offer deduction possibilities on the one hand. On the other hand the criteria as set such that not often the deduction can actually be used.

That is exactly the policy of the Dutch Government. The number of deductions need to be reduced, so the overall tax rate can go down as well. The Dutch tax office is good in reducing the deduction possibility. The lower overall tax rate is very slowly in progress.

My name is Kelly Postema, feel free to contact me about tax deductions.

Random depreciation versus depreciation

One man company bookkeeping

Random depreciation of an investment is under conditions possible. What is an investment and what is random depreciation?

What is depreciation of investment

The guidelines in the Netherlands determine that a company made an investment when the amount excluding VAT of the company asset exceeds EUR 450. An investment you need to be able to touch, not being a car.

The same guidelines determine that a regular depreciation is done over a 5 year period in equal parts, pro rata. In case an investment can be sold for a value after the 5 year period, you can only depreciate till this value.

Example

You purchase a fancy desk that can go up and down electrical. Costs EUR 2100. After 5 years you expect the desk to sell for EUR 200. This implies you can depreciated over a 5 year period EUR 1.900, each year 20%. The desk you purchase September 1 of a year. This implies you owned the desk for four months. Hence 4/12 of the 20% you can depreciate in that year, being EUR 124.

5 year period

The 5 year period is set in stone, even if your investment does not last 5 years, like a laptop. Regardless, you need to depreciate over a 5 year period. In the event your laptop dies on you after three years, have this documented or proven one way or the other. In such an event, you can depreciate the remainder in full instantly.

Random depreciation versus depreciation
Random depreciation versus depreciation

Random depreciation

The criteria of the investment of EUR 450 or more apply to the random depreciation. However, a random depreciation is random, hence not lead by the 20% of the regular depreciation.

What are the conditions for random depreciation?

  • The company that can apply random depreciation is the one man company or sole trader. The maatschap and the VOF. These last two types of companies are like the transparent sole trader company, but the entrepreneur is then not the sole entrepreneur. Multiple entrepreneurs are part of the activities.
  • The starting entrepreneurs criteria applies during this period of random deprecation

The starting entrepreneur is an entrepreneur that works at least 1225 hours for the company and earns the majority of the income with this company. In the first three years of period you make the 1225 hours and majority of the income, you can apply the random depreciation.

The random depreciation helps entrepreneurs with the liquidity issues of starting companies. For instance, a EUR 10.000 investment is made. This implies EUR 10.000 has left the bank account. But only 20% pro rata is deductible from the result. Consequently, the entrepreneur pays over a higher result tax, then the bank account is showing. To put it simple.

Temporary advantage

The random depreciation is a temporary advantage. Not only can the depreciation only be used in the max three years that the company qualifies for the starting entrepreneurs deduction. Also in the end you can only depreciate the amount of the investment. The higher your random depreciation is at the start, the sooner the amount you can depreciate for that investment is zero. Whereas the regular depreciation would continue. Then again, the random depreciation does make you pay instantly less tax. That is always pleasant, what happens over a longer stretch, like a 5 year period is sooner forgotten.

Example

You are a starting entrepreneur and you purchased a fancy desk that can go up and down electrical. Costs  EUR 2.100. After 5 years you expect the desk to sell for EUR 200. This implies you can randomly depreciate EUR 1900. The desk you purchase on September 1 of a year. You decide to fully depreciate the EUR 1.900 in this four months part of the year.

The philosophy is intact. You spend EUR 2.100 and can instantly deduct EUR 1.900 instead of EUR 124.  Then again, the temporary advantage is also shown. In the first year the full depreciation is taken. Whereas with regular deprecation there are four more years to reduce the result of the company.

Tax is exciting

We think tax is exciting and we are excited about starting entrepreneurs. Most provide consultancy services. If you are making investments in the company that qualify for the investment deduction or random depreciation, we are happy to assist.

Entrepreneur purchasing a home

entrepreneur

The entrepreneur purchasing a home is a topic not being easy from loan or mortgage point of view. You need the experts and not all experts work with the bank only.

Entrepreneur purchasing a home – who is an entrepreneur?

The entrepreneur is a person that earns an income or a result not being paid by a person or organization to which you can refer as employer.

Often an entrepreneur is referred to ZZP or freelancer. The company can be a transparent so called one man company (eenmanszaak). The company can be a limited liability being the BV company.

Where is the entrepreneur taxed?

The main rule is that in the country where the income is being generated, the income is taxed. Rather simple, but for some still confusing.

For instance, you work as consultant for a Dutch company. You have registered your company at the Dutch Chamber of Commerce and you pay Dutch taxes.

Some have still a running company in the United States or United Kingdom for instance. The client base is in the USA and or United Kingdom. The entrepreneur is operating the company from the Netherlands. Unless a director is locally appointed that is fully authorized, the company is taxed in the Netherlands.

Entrepreneur purchasing a home
Entrepreneur purchasing a home

Do you want to be taxed in the Netherlands?

If you arrive from for instance the USA or United Kingdom, or many other countries in the world where the tax rates are much lower, you prefer not to be taxed in the Netherlands.

The Dutch Government tries to assist the entrepreneurs by offering tax benefits:

  • Starting entrepreneurs discount
  • Entrepreneurs discount
  • Small business discount
  • 30% ruling

The tax credits mentioned above do help. Still you want to be taxed in the Netherlands, as the Dutch system is based on social collaboration. Part of the tax being paid is for the social system, like the health care system and the old age pension. If you work and live in the Netherlands, you are socially insured in the Netherlands.

Other aspects of you wanting to be taxed in the Netherlands is that this opens for you services like taking out a loan, leasing a car, renting a place.

Can the entrepreneur qualify for a loan to purchase a home?

Now I enter the territory of the financial experts, like Wouter Hofstee Holtrop working for Expat Mortgages. I might be corrected by Wouter, but yes the entrepreneur can qualify for a home owner loan.

My experience, being an entrepreneur myself, learned me that I had to go through 19 forms to apply for my mortgage many years ago. Then the bank noticed that I had double green ranking. That means I have not had on my personal bank accounts a negative balance, nor did I fail on any other financial loan obligation. Instantly 17 forms disappeared. This is my experience.

Wouter might laugh at my experience as times have moved on, but in the Netherlands you can only spoil your financial ranking as international. You arrived from abroad for the first time in the Netherlands and your financial ranking is sublime. The Dutch system is not based on building credit. Wouter can explain. Now the entrepreneur needs to proof his or her result can achieve a loan amount enabling the purchase of a home.

Does the entrepreneur purchase the house privately or via the business?

This is an often asked question as in some countries owning the home business wise is financially interesting. In the Netherlands this is not the case. Right now we have a rather booming housing market, and basically history shows it nearly always has been like this. Simply hold on long enough to the house and you make a capital gain. We do not tax capital gains in the Netherlands. That is the reason not to purchase the house business wise.

The other reason is the loan capability. A bank is willing to loan more and under better conditions to you in person, than to your company. That is the second no to this question.

Tax is exciting

We think tax is exciting. Wouter thinks mortgages for entrepreneurs are exciting. Wouter is known by me for many years as we are part of the Expat Housing Seminar. This is hosted currently by IamExpat and the partners are Expat Mortgages, Mie-lan Kok Real Estate agents, Buma Algera notaries and Orange Tax (us).

Therefore I support Wouter as an excellent mortgage entrepreneur for entrepreneurs. Wouter vividly likes to hold your hand through the process for the ultimate joy: the mortgage being the road to your home.