Corona (Covid 19) makes the world a different world compared to the pre Corona era, also tax wise with respect to the entrepreneurs deduction. How is that?
In the income tax return we know the entrepreneur. The entrepreneur is a tax payer who is owner of a company registered with the Chamber of Commerce, often as a so called one-man-company. This could also be a joint venture between two one man companies, referred to as VOF. Obviously the one man company is also open to women, just an old phrase nobody knows how to change.
The advantage of the one man company is that you can deduct from the taxable profit the entrepreneurs deductions and if you registered your company for less than three years, you can add to the entrepreneurs deduction , the starting entrepreneurs deduction.
The taxable profit is reduced by EUR 7.030 (2020 rate) entrepreneurs discount and if you are in the three starting period of the company, on top of the entrepreneurs discount you can deduct EUR 2.123 starting entrepreneurs discount. The third discount is the small business discount, but for that one there are no conditions other than having a profit like income in the income tax return.
The maximum rate against which you can deduct these discounts is 46% (2020). Even if your profit exceeds roughly EUR 68.000 where the tax rate is 49,5% the discounts are taken into account for max 46%. If your profit is below EUR 68.000, then you are in the 37,35% (2020) tax rate, so the deduction is at this 37,35% rate. The 46% max is therefore only for the entrepreneurs who exceed EUR 68.000, let us refer to them as the more successful entrepreneurs.
How is corona and entrepreneurs deduction relevant in this explanation?
The entrepreneurs deduction has two criteria to be met. One is that you work at least 1225 hours for the one man company. The other criteria is that the profit of your company is your main income. For example, you work 1225 hours (full year half time work ) for your company and you EUR 30.000 profit, but the other half days work you are employed for EUR 40.000 per year, then you do not qualify for the deduction.
Corona and entrepreneurs deduction kick in with the 1225 hours. Due to the economy slowing down, or yourself, the entrepreneur slowing down or being limited in activities, can cause the minimum 1225 hours not to be met in 2020. No 1225 hours, no entrepreneurs deduction.
Our minister has decided that Corona cannot be the cause for entrepreneurs to lose their tax credits. In the period March 1, 2020 up to May 31, 2020 the entrepreneur is assumed to have worked at least 24 hours per week. If then the full turnover has vaporized due to Corona, these entrepreneurs can still claim the entrepreneur deductions, while adjusting their annual preliminary income tax assessment. And in the final 2020 income tax return, these 24 hours per week for this period can be taken into account, even if no work was done or could have been done.
Corona not. Therefore we think that our Government has shown itself as a good sport to come up themselves with this workable solution for the act of God that has come upon us.