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.

Capital gain tax in the Netherlands

Capital gain tax in the Netherlands

Capital gain tax in the Netherlands, that is something often inquired about. Especially when property is sold in this current market. Sometimes also by a bitcoin holder that purchased and sold after the hype. Then the question relates more to setting of a capital loss.

Capital gain tax in the Netherlands

The quick answer is that we do not know the concept of capital gain tax. I would quickly like to put this remark in perspective in the below article.

Bottom line for private individuals is that we do not know the concept of capital gain tax. If you purchase and sell shares and you make a result. The profit is not taxed, the loss cannot be set off.

Capital gain tax and selling your property

Today it is June in 2021 and the Dutch housing market is rather overheated to say the least. To purchase a property, you feel like paying too much. Native Dutch have this feeling even stronger than internationals. The experts have a different view, they think the market can go up over the next decade even more. Are you paying too much if you can still make a gain when you sell?

More importantly, is the gain made with selling your property taxed?

The answer is no. However. There is a catch.

If you sold the property being your main residence with a gain. The gain is not taxed. If you purchase within 5 years after this sell again a property for you as main residence, you need to invest the profit in the new house. That is a condition.

The investment in the new house could be that you do not fully finance the house for the profit made with the previous house. However, we often see that the house is again fully financed. The profit is then used for refurbishments. Refurbishments only count in this respect if connect to the house. That is a new bathroom, kitchen, roof. Inventory and a Ferrari in the garage do not count as refurbishments.

Capital gain tax in the Netherlands
Capital gain tax in the Netherlands

What is the penalty for not reinvesting the gain?

In the situation you sold your main residence with a gain. You did not or not fully invest the gain in the next residence you purchased. What is the penalty. The penalty is that you cannot deduct the mortgage costs for the proportion of the gain.

Example. A EUR 50.000 gain was made with the sale of your property. You fully finance and not invest the profit in the next house. A new loan for EUR 300.000 is taken out. In this situation the mortgage costs (interest, notary costs ect) are for 250/300 part deductible for the period this mortgage is in place.

Is the penalty a problem?

Again, this is June 2021, the year in which it is possible to get a mortgage with a 10 year fixed interest for 1,4%. That interest rate over EUR 300.000 is EUR 4.200 per year. That interest rate over EUR 250.000 is EUR 3.500. This implies of the EUR 4.200 you pay to the bank, EUR 700 does not qualify for deduction.

In my previous article I stated that the maximum deduction in 2021 is 43%. This implies EUR 700 times 43% is EUR 301. So per month you lose EUR 25 in tax deduction. That is two happy meals, French frites and milkshakes. In other words, you hardly notice.

Capital gain and riding of into the sun – be carefull!

If you make a capital gain on selling property and you leave the Netherlands to start the next adventure. No capital gain tax….IN THE NETHERLANDS!

Other countries have learned about the gains made in the Netherlands and our system of no capital gain tax. Countries like the United Kingdom, Germany, South Africa, Canada, United States of America, Italy and I can only assume many more.

These countries have reread the article in their tax treaty with the Netherlands. Often that is article 6 of the tax treaty. Suddenly they read the word ‘may’. The ground rule is that the country in which the property is situated is the country that only taxes the property. Hence a capital gain is taxed in that country, only the Netherlands does not.

The other country in which you are a tax resident while selling the Dutch property will execute the ‘may’ as follows. We may tax the income of the property, so we will tax that part the Dutch do not tax. In other words, the entire capital gain.

So please do your timing well. If you are a resident in the Netherlands, try to remain one till and including the day you sold with a profit your property. Then the new to be tax residence of yours cannot tax the gain.

Tax is exciting

We think tax is exciting. You are excited about the capital gains not being taxed in the Netherlands, we can only assume. Capital gains are indeed not taxed, but if the gain is obtained with the sale of your home and you purchase a new home rules are in place that limit the free movement of the capital gain. Feel free to contact us about your capital gains.

Property investment in the Netherlands and tax

Capital gain tax in the Netherlands

Property investment in the Netherlands has a tax consequence. There are multiple situation how you invest, we try to touch most of them in this article.

Property investment in the Netherlands

You live abroad and you wish to invest in the Netherlands. After you made the purchase you have become a non-resident tax payer. That implies you are not living in the Netherlands, but you do have an asset in the Netherlands for which you need to pay tax.

Dutch tax number

In order to be able to actually file the non resident income tax return, you need a Dutch tax number. We refer to that number as the BSN number. The Dutch tax number or BSN number is normally obtained when you register yourself with the city hall. Then automatically the resident tax number is issued.

Please note, you are not a Dutch tax resident. Do not register at city hall as a regular tax resident, emphasis you are not living in the Netherlands, only own property in the Netherlands. To obtain such a non resident tax number a different procedure exists.

Dutch tax resident

If you are living in the Netherlands you obviously can invest in Dutch property as well. This article is about investments not being your own home. An investment that is not in your own home is taxed in Box 3. The Dutch tax system is a boxing system and the taxation of property is taxed in Box 3.

Property investment in the Netherlands and tax
Property investment in the Netherlands and tax

Nonresident tax payer and resident tax payer

A nonresident tax payer and a resident tax payer, pay the same amount of tax, have the same tax credits. Taxed is the so called WOZ value minus a possible debt you took out in order to be able to purchase the Dutch property. The balance of that amount is taxed in Box 3. How much tax you actually pay depends on the amount that is taxed. We have since a couple of years tax brackets in Box 3. As the tax rates will go up, take 1,4% tax as a good indication.

Income taxed

Taxed is the value, not the actual rental income. Nor can you deduct any costs. The value used is the so called WOZ value. A value determined by the city based on similar type houses recently sold. The WOZ value of the house we can manually reduce in the income tax return. That is possible based on the rent actually received and the contract you have with the tenant. If the house is for instance a pied-a-terre, then the value cannot be reduced.

Transfer tax

Transfer tax is 8% for investment properties. We are sometimes asked by persons that would like to purchase a property in the Netherlands for their child. The transfer tax is then 8% and the parents have become Dutch nonresident tax payers for the house. That implies an annual income tax return to be filed and tax to be paid.

If not the parents would purchase the house, but the money is loaned to the child and the child purchases the house, then the transfer tax is 2% and under conditions even 0%. The house is then taxed in Box 1 and could result in a refund, instead of tax to be paid.

If parents are afraid their child will sell the house and run to Vegas to spend the proceeds, the parents can put a mortgage on the house, via a notary. Then the house cannot be sold without their permission.

Tax is exciting

We think tax is exciting and we are already excited about filing your nonresident income tax return for EUR 390 incl VAT.

Company is a source of income, not loss

entrepreneur

A company is a source of income, not a source of loss. If too much loss, your company is regarded a hobby for income tax purposes.

A company is a source of income

A company is always started at some point. Often in the set up phase of the company there is maybe no turnover, or at least more costs than turnover. A company needs to become exposes to attract clients. This often implies the first year is a loss year.

The second year could be a loss year, the third year can be a loss year. However, if the fourth year does not show a profit, the company is no longer allocated as such by the Dutch tax office. Your efforts are then labelled as hobby.

How is a loss financed

A company making losses implies costs are being made. These costs are paid somehow. Either you have enough savings, or you have other income. The other income is the problem.

The other income is often income from employment. In the income tax return all is reported in Box 1. That implies the loss is set off against the employment income. That creates the refund. That refund the tax office is eager to challenge after a three year period.

A company is a source of loss – court case

A Dutch tax resident operated a loss making company since 2008. This was financed by employment income and later pension income. He had all kind of activities in his company such as advice about human beings, nature, technique. He operated a rose growning business and a poffertjes kraam. None of these activities yielded more income than the costs made.

The tax office denied the loss claim, that resulted in the wage tax withheld over the employment income and pension income to be refunded to him. The Dutch tax resident appealed with a claim that Zalando, Andrie Rieu and Telfoft made only losses and those are still accepted as companies.

The court denied his claim. Was he right with his claim? No. He confuses a one man company over a BV company vehicle. The one man company with side income creates a tax refund when a loss is being made. A yearly loss making BV company does not yield a refund, as there is simply no more tax to be refunded.

Tax is exciting

We think tax is exciting, some think a company is exciting, while it actually is a hobby. A hobby can be a source of income, often it is not. We do get clients in the office that proudly present their company. We have then to inform them it is not actually a company, it is a hobby that made losses for many years. Our suggestion is to treat the hobby like a hobby and terminate the company, but please continue the hobby.

Twelve year recovery period for Dutch tax purposes

The standard recovery period is five years, but in international situations this can be extended to a twelve year period. What is this about?

Recovery period

A recovery period is a period during which the Dutch tax office can go back to adjust your tax base. That is a simplified explanation of the recovery period. The five year period also applies to you. Should you see after a couple of years you can claim back or should have paid tax, you can go back max five years.

The five year period has been introduced many years ago to create peace. Peace in the sense the tax office can only go back so many years. But also for the Dutch tax office, that a tax payer cannot file again the past ten years. That results in a lot of work for our civil servants.

Exception to the rule

The exception to the rule is when you have misbehaved, when you turn out to be fraudulent, when you were very much aware you filed an incorrect tax return. In such cases the Dutch tax office is not limited by the five year period.

International recovery period

In international situations in the old days it took sometimes many months to obtain information from abroad. Hence for international situations the five year period was too short, so extended to twelve years.

In the current digital world where the tax offices of 150 countries are connected, the information flow is often a same day turn around. Some not even a turn around, but information pushed that the Dutch tax office had no idea about.

Twelve year recovery period for Dutch tax purposes

International recovery period – court case

A father traded motor cross parts on race days of his son and via Ebay. Payments were made cash or Paypal. The paypal income was paid out on a German bank account. None of this was ever reported in the Dutch Value Added Tax return nor the income tax return.

The income source was discovered and the Dutch tax office charged for the period 2003 to 2012  the income tax, the Value Added Tax and a 50% penalty on top.

The father argued that the twelve year recovery period should not be in place, as he always had the intention to file the income, but never did. The Dutch tax office and the court both agreed that the twelve year recovery period was especially introduced for situations like this. The twelve year period remained in place.

Tax-is-exciting

We think tax-is-exciting. For us it is a no brainer to report your global income in the country where you are a tax resident. Some still think income can be hidden, but in this time and age of digitalization I think that this is an old thought. Regardless, rules need to be obeyed.

The day the Dutch tax office discovers the income, you now know they can go back twelve years. You already spend the income, and now you are faced with the tax and 50% penalty. If you cannot pay the tax, you are firmly asked to sell your possessions to cover the tax. The house you own is not save either.

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.

2019 income tax return

2019 income tax return – exciting times! We are so excited we might be able to assist you again claiming back some tax.

2019 income tax return – who needs to file?

The Dutch tax residents that requested a refund for the house obviously need to file the 2019 income tax return. If you do not, you need to pay back the refund.

The Dutch tax residents that only have had 1 employer in 2019, no house, no assets, most likely are not invited to file and if they do file, the outcome of the tax return will be nil.

If you had two or more employer in 2019, most likely the Dutch tax office invites you to file to see if enough tax was withheld.

The Dutch tax residents that have assets exceeding EUR 30.360 a person and EUR 60.720 for  a tax couple, are to file the Dutch income tax return and need to report the WORLD WIDE assets.

However, if you have the so called 30% ruling no assets need to be reported. That said, if you use the tax return the Dutch tax office set ready for you, the Dutch tax office automatically chose for you that you DO NEED to report your worldwide assets. So better not to use that possibility if you have the 30%  ruling.

2019 income tax return
2019 income tax return

The Dutch tax residents that are registered as entrepreneurs with the Chamber of Commerce need to file a profit tax return.

The persons that arrived or left the Netherlands need to file a migration tax return. That said, those who are entitled to a refund are often not invited to file, best is to ask us to check if you can have money back (no charge). If you then can have a refund exceeding our fee of EUR 390 incl VAT, we recommend you to file.

2019 income tax return – what are our fees?

Our fees for the regular income tax return are EUR 390 incl VAT including your tax partner.

Our fees for the migration tax return are EUR 390 incl VAT including your tax partner.

Our fees for the entrepreneur income tax return are EUR 550 excluding VAT including your tax partner. We do assume either we already processed your administration or you provide a balance and profit and loss overview.

2019 income tax return – why use our paid service?

Indeed the Dutch tax office has set ready your 2019 Dutch tax return for free. You only need to push yes to file. The small print does state that you do need to check if what is included in the tax return is indeed correct. That the tax office does not take responsibility and if the income tax return turns out to be incorrect, penalties will be issued to you.

How wrong can they be? If you have a simple life with your family, employment and no assets, you can accept this tax return. Our clients have no simple life, they are internationals with at least bank accounts abroad, often property abroad,  the Dutch tax office has not included in the income tax return. The penalty of not reporting the world wide assets correctly is 300% of the tax due.

Then again, most of our clients have the so called 30% ruling and that is not covered by the tax return set ready of the Dutch tax office.

Despite our claim we actually think about your tax return, we offer you a human being (us, excited tax advisors) to whom you can ask about, protest against, share your tax issues. We process a lot of tax returns and there is hardly any message that does not contains a question. Our core business is of course ‘I have a short question’ afraid we start the hourly rate. But short questions are part of the deal.

Then after the tax return is filed the tax office sends assessments which we are happy to receive and examine. Or the tax office sends an inquiring letter which we will be excited to process. Or the tax office denies you a tax aspect, which we will be glad to appeal.

Orange Tax – Tax is exciting!

We do think tax is exciting and we can hardly wait to start processing your income tax returns.

In order to be able to complete your 2019 personal income tax return, we would like to receive the following information:

  • Your 2019 annual  income statement from your employment;
  • If applicable your 2019 annual mortgage statement;
  • Study costs paid in 2019 exceeding the amount of € 250;
  • The 2019 preliminary refund assessment received early 2019 or the actual refund amount received from the tax office per month, if possible, but very important.
  • If you own more than € 30.360 (tax free amount) in world wide assets, please provide us with all bank balances, shares/bonds assets and real estate assets valued as per January 1, 2019. For tax partners the tax free amount totals € 60.720 instead of € 30.000. 30% ruling holders do not need to provide any of this information.

Please forward the collected information preferably in PDF per email to info@orangetax.nl or via regular mail to P.O. Box 75524, 1070 AM  Amsterdam.

We would appreciate it very much if you would give us an explicit permission from a privacy point of view that we can process your details. This needs to be done for every tax return, so if you have completed this already last year, please do again this year. This permission you can grant via this link: https://www.orangetax.com/handling-agreement/

The rule of the tax office is: if filed before April 1, you receive the (refund) assessment before July 1. The regular deadline is May 1. If you meet this deadline instead of April 1, then you are still in time but it could take about a year before you receive a response from the Dutch tax office.

Our fee for the services of the filing of the personal income tax return is € 390,00 including VAT.

Foreign income and Dutch tax

What if you have foreign income and you need to file a Dutch tax return, what will you do? Are you obliged to report this income?

Foreign income and Dutch tax – employment outside the Netherlands

We often see the situation that one partner earns a salary in the Netherlands and the other partner works abroad and then there is confusion what to do with the foreign income in the Dutch income tax return.

First we need to determine where the persons are tax resident. If their home is in the Netherlands, for instance a rented home, then it is very likely they are Dutch tax residents. If they own the home they are living in in the Netherlands, then without any doubt they both are Dutch resident tax payers. That is also the desired situation as you like to deduct 100% of the mortgage costs, not only 50%.

One of the partners is employed outside the Netherlands. That income is taxed abroad, will it be taxed again in the Netherlands? No, it will not be taxed in the Netherlands, but the income is part of the Dutch tax return. As a Dutch tax resident needs to report his or her worldwide income, the foreign income is part of the Dutch tax return. If the foreign income was the only income, then a 100% double taxation relief is applicable. In the even the employee had foreign income and started in the same calendar year Dutch employment, then the double taxation is not a full relief.

Foreign income and Dutch tax
Foreign income and Dutch tax

Social premiums

Besides income tax a Dutch resident tax payer is subject to social premiums. If the Dutch tax return is completed you can indicate where a person is socially insured. The rule is that an employee is socially insured in the country where the employer is situated. There are numerous exceptions, but this is the main rule. As no social premiums are due in the Netherlands over foreign employment income, no additional Dutch payment is due.

Why is it important to report the income?

Besides the obligation you need to report your worldwide income, even if no additional income tax is due, you need to report the income for possible benefits or deductions. For instance a day care center benefit or health care benefit is calculated over the combined income. Or if you want to deduct health care costs or donations in your income tax return, the threshold is based on the combined income. Hence to avoid negative corrections in the future, best to report the income immediately.

Foreign income and Dutch tax – employment inside the Netherlands

Persons moving to the Netherlands, often because their partner has a Dutch job opportunity, keep their foreign employment while living in the Netherlands. Most jobs can be done online and finding a job in the Netherlands with your foreign expertise is not so easy or your foreign employer likes to continue your employment  even if you live and work in the Netherlands.

This is a very much different situation from the situation you actually work abroad while being a Dutch tax resident. Now the work is done in the Netherlands and all tax treaties the Netherlands has clearly state that work done in the Netherlands for a foreign employer is taxed in the Netherlands. This implies the foreign employer needs to set up a Dutch payroll with Dutch tax and Dutch social premiums.

Dutch labour law

More important for your employer is that Dutch labor law applies on work done in the Netherlands. Your employer can insist on continuing the foreign employment contract, but in case of a labor dispute the foreign employment contract terms when contradicting with Dutch rules, are waived. That is never a good situation for the employer.

Orange Tax Services

We can process your Dutch income tax return with your foreign employment income tax is not taxed. We can also process the Dutch income tax return with income you earned in the Netherlands with an organization as Nato or other organization that has negotiated that you pay no Dutch tax over the income earned with that organization.

We have a dedicated team for the situation where you are basically employed by a foreign company working in the Netherlands. We can set up the payroll in a rather efficient manner where we fully provide the service the foreign employer needs to comply with Dutch rules and regulations.

Corporate tax: rent privately owned office to your company

Creativity in tax is a joy the Dutch know very well, hence we get all kind of suggestions how to avoid paying too much tax. Often lack of knowledge of the fiscal legislation makes that suggestions simply cannot be executed as it is forbidden. Sometimes it is possible, but is it worth while pursuing?

Rent privately owned office to your company

You are the managing direct and 100% shareholder of your BV company, or for that matter your UK Ltd company registered in the Netherlands, or your US Inc. registered in the Netherlands as you are living in the Netherlands.

You have understood that, as you earn at least 90% of the turnover of the company, your salary cannot be less than 75% of the profit, or at least EUR 45.000. At the same time you have learned the hard way that we do have a 52% maximum tax rate. Even if you have the 30% ruling, which soften the blow, one day you will no longer have the 30% ruling. How can you avoid to pay EUR 0,52c over ever euro earned? Maybe generate  other income than salary income?

Rent privately owned office to your company. If you happen to own a property that is suitable to house your company office in, that is convenient. And as you learned that your Dutch property is taxed in Box 3 for about 1.2%, even if you have the 30% ruling. So you charge a high rent, which reduces the corporate income tax significantly, you receive money in your pocket and you are only taxed for 1.2%. Too good to be true.

Received rent tax free – indeed too good to be true

The Dutch tax office has thought about this scenario a long time ago and introduced Ter Beschikking Stelling (TBS). TBS stands for you the owner of the company makes available to the company an asset owned privately. This is not forbidden, but the asset it not taxed in Box 3 (1.2% wealth tax) but in Box 1 (52% tax rate).

Rent privately owned office to your company
Rent privately owned office to your company

Example rent privately owned office to your company:

Your BV company made a EUR 100.000 profit, taxed at 20% corporate income tax, hence EUR 20.000 corporate income tax is due.  The next year you have again EUR 100.000 profit, but you rented the building you own personally to the BV company for EUR 20.000, hence the profit is EUR 80.000 and EUR 16.000 corporate income tax is due. The rent income you receive is taxed in Box 1 in your income tax return for 52%. EUR 20.000 times 52% is EUR 10.400. Now you paid over the EUR 80.000 corporate profit and EUR 20.000 privately received rent EUR 16.000 corporate tax plus EUR 10.400 income tax is EUR 26.400 overall tax. That is more than the initial EUR 20.000 corporate tax.

Of course this example does not take into account the rent you are not paying to a third party anymore, but it is an indication of the situation. You might argue that the Box 1 rates starts at 37%, but that has already been used with the salary of the director, hence everything earned besides the salary is put on top in the income tax return, hence the 52% tax.

Rent privately owned office to your company – via your wife

The shareholder will counter to us that he could transfer the building to the name of his wife and she rents it out to the company. She has no shares in the company. But the rules in this respect are identical to the tax partner and children that are under age.

Some shareholders are more drastic and they suggest a divorce to generate a tax benefit. You might not believe me, but it is often suggested. Then we need to explain to our client that your wife might not fully trust you only divorcing for a tax benefit of the rental income and will launder you for every penny you have. Alimony to your ex-wife is tax deductible, but if that was the intended outcome of the renting out the building exercise, we doubt.

Orange Tax Services

Corporate tax planning is something you truly need to do ahead with one of our corporate tax experts. We have plenty of tax rules that make situations as they are now. We will be glad to explain them to you. Often the outcome is: make as much money as you can and simply pay the tax. That creates no issues with the tax office in the future during an audit.

2017 income tax return – final call

The tax year is nearly at its end and the question is whether you have already filed your 2017 income tax return.

2017 income tax return – Do I need to file?

Invitation

The 2017 income tax return is due when you have been invited to file this tax return. It is possible that you are automatically taken into the delay system of a tax advisor you might have used in the past. That is the reason why you have not received any reminders. However, May 1 2019 this delay rule ends and if you were supposed to have filed, you will  be reminded by then.

Ought to know

You are ought to know the legislation of the Netherlands. Most Dutch are not aware of the full legislation, let alone you the non Dutch. The rule states that if you know you need to pay income tax, you are to file your income tax return not later than two weeks after the deadline. The deadline is May 1, 2018. Hence by May 15, 2018 you should have filed your income tax return.

2017 income tax return
2017 income tax return

2017 income tax return – Ought to know, what is that about?

The Dutch tax rules state that you have to file an income tax return when you know you need to pay income tax. When do you know that you need to pay income tax? That is the case in the following situations:

Two employers in one year

You had two employers in one year. If you earned with one employer about EUR 20.000, you are in the first tax bracket. If you earned again EUR 20.000 with another employer, maybe while you had two jobs at the same time, this employer calculated the first bracket tax rate. In the income tax return these two are put on top of eachother and then you end up in the second tax bracket. Hence you are due additional income tax.

Source of income other than employment

In the event you had a company like a one man company or you performed services for which you had not registered a company, but these services are regarded a source of income, then you need to file an income tax return to report this income.

What could be a source of income? If you for instance trade in bitcoins where you exceed the normal assets management activities. You trade on a daily basis, selling, buying and making a profit, then this is a Box 1 income. If you hold bitcoins and you trade a few times per year, this is a Box 3 aspect of your tax return and you also need to file a tax return if your total assets exceed the threshold.

Owning your own home

Owning your own home is in fact a source of income, but as the costs of this income – the mortgage interst– often exceeds the income – percentage of WOZ value – , it is a negative source. Hence it will result in tax back or you pay less tax. In normal circumstances the tax office does not accept a constant negative source of income, then the source is referred to as a hobby. But in case of the home owner it is accepted.

You need to file your tax return to claim the refund. If you already were paid out the refund on a monthly basis during the year, you still need to file the tax return as the tax office would like to check if what was paid to you was indeed correct. In the event you decide not to file nevertheless, the tax office will demand you to pay back whatever they paid to you and you get a penalty for not filing the income tax return.

World wide assets

If you hold a so called 30% ruling, you do not need to report your worldwide income. However, the exception to this rule is property owned in the Netherlands. As many persons invest in buy to led property these days, this is something that needs to be reported.

Others who do not have the 30% ruling or no longer have the ruling and that exceed the threshold for reporting the world wide assets, need to file an income tax return.

Migration income tax return

If you migrated to or from the Netherlands during the year, then the chance is that you are entitled to a tax refund. If you are not sure you can have a tax refund or at least a tax refund exceeding our fees, you can always ask us to check if you can have money back. But please stress the fact ‘check’.

Orange Tax Services

The above list is not a limited list, there can be other reasons why you need to file an income tax return .For instance you received alimony payments for yourself, you had a 401K pay out in 2017 or an IRA distribution. Your Roth IRA value exceeds the threshold. Even if you own property abroad, which are not taxed in the Netherlands, you sometimes need to file an income tax return.

We can file that income tax return for you. Our fee is still in 2018 EUR 370 incl VAT, from January next our fee is EUR 390 incl VAT. For entrepreneurs our fee is EUR 550 ex VAT. Feel free to contact us.

Your company making losses might not be a company

Starting your own company can be a dream come true. However, your company making losses only might challenge the tax office to indicate it is not a company, it is a hobby.

A company – one man company/private company

A company from a tax point of view is source of income. The first three years of existence the tax office gives you a kind of holiday with respect to the income. That implies you are not required to be profitable immediately, because if only immediate successful entrepreneurs are regarded companies, we would not have a lot of companies.

A company – BV company

This article does not apply to a BV company. A private company loss is set off against other income or income of previous years. A BV company loss can only be set off against the previous year or future profitable years within that BV  company. When that BV company keeps on making losses, the money simply runs out. For a private company the loss can yield a tax refund from tax paid on side employments or previous years income.

company making losses

A company making losses

In the event your one man company keeps on making losses, even after a three year period, then the tax office determines your company not as a source of income, but as a hobby. The costs of a hobby are not tax deductible.

The moment your company is regarded a hobby and you have already set off the losses against possible employment income you had at the same time. The loss compensation will be challenged and you are to pay back the yielded tax refund.

Eco-friendly polish – court case

In October 2017 the 2010 income tax return of a couple was subject in a court case. I mention this time line to put the time frame into perspective.

The lady started a one man company, the one man stands for one man holding the equity but it can indeed be a woman as well. In the years 2007 and 2008 the company made a total loss of EUR 17.193. The woman had no taxable income to set off against this loss, hence her husband made a claim for the amount of EUR 7.026 out of the EUR 17.193 in his 2010 income tax return.

The tax office challenged both the losses as who compensated the losses. The losses were challenged on the fact that the company never made a positive income and there were also no indications the company was able to make a profit in the near future. That made the company a hobby, and the losses were not open for compensation with future positive taxable income.

Moreover, the tax office challenged the fact that the husband who was not the entrepreneur compensated the losses of his wife in his income tax return. In order to be able to claim a loss, the tax office needs to have formalized the loss. And if it is formalized, the loss needs to be in the name of the tax payer that would like to compensate the loss. As the husband did not have the company, he could not have had a loss compensation statement in his name, hence the EUR 7.026 the husband claimed had to be undone.

The husband appealed with the high court, but the high court did not see any rule not being applied incorrectly, hence dismissed the case without even making a comment. That obvious the incorrect tax filing was processed.

Orange Tax Services

We often get future entrepreneurs in the office. They have made a business plan and proudly present that to us. But all business plans are the same. A loss made in the first and also second year, then break even and in the fifth year a nice profit.

We are not much bothered by business plans, as if someone is able to predict the future, that someone would be wealthy already. In our opinion you need to JUST DO IT. Start your plan, stick to the plan, regardless was other people say to you. That other people being negative most like have employment, you will notice that the entrepreneurs will encourage you.

We will be glad to process your bookkeeping and accounting. Even if it turns out it was a hobby after

Is your company a source of income? Maybe not, then no income tax is due

A company is subject to income tax. But what if the company is not regarded a source of income?

In this time of age a lot of starting entrepreneurs indicate themselves as start-up company. Basically it is a starting entrepreneur. Regardless how you refer to yourself, if you start a company you will not be instantly successful.

What if your company is never successful?

If your company is never successful, then for Dutch income tax purposes this is not a company but a hobby. Is a company a source of income? When that is the case the loss is tax deductible. A source of income can be a source of loss at the start, as long as the coming few years show the possibility of a taxable profit.

No source of income

A creative starting entrepreneur claimed to have a company, but made only losses. These losses were set off in the income tax return against positive taxable income of previous years. A tax refund is the result. The tax office argued the company.

The company was a information portal where recruitment for the food and beverage industry. Even though the site has had 238 visitors in the period of 2011 to 2014. Non of these visitors created any turnover with this portal. As there had not been any turnover, nor was it likely soon any turnover would be created, the tax office successfully argued for court that this was a hobby.

The consequence of the portal being a hobby is that it is not a source of income. The results is that the losses claimed were nullified. No tax refund.

source of income
source of income

Price winning filmmaker without turnover

In another situation a filmmaker was creating documentaries for many years without them yielding any income. The tax office denied the company being a source of income. The filmmaker argued in court that it was a company. He had won a price in 2011 for one of his documentaries. That was indeed true, but even the price winning documentary did not yield any income. The claimed losses over the period from 2008 till 2015 were nullified.

How should you claim the loss of a so called start up?

In our opinion you need to follow your dream, so you have to start the company you think will bring you income. The chance exists it will not and then it is a hobby. If you set up a so called one man company you do not need to report this as a company for income tax purposes. So you can first start and see where it goes. If at the end of year two the prospect of turnover exceeding the costs is very likely, you report the company retro actively with the Dutch tax office.

This has of course only purpose when you kept good track of the costs made in a bookkeeping from the start.

Orange Tax Services

We can assist you with your new company. There is more to it than only income tax. For the Value Added Tax legislation it is not that relevant you are creating a source of income. From a VAT perspective you are already subject to this tax when you compete with other companies.