In the period from March 1 to May 1, 2024, income tax returns must be filed again, you do this over the year 2023. Many freelancers find this a difficult job. Make sure your tax return is submitted to the tax authorities before May 1, 2024. If you fail to file the return on time, you may receive a penalty. In this blog, you will learn the procedures about the income tax return so that you are aware of the regulations and avoid such penalties
What is Income Tax?
Income tax is the tax you pay on your income and assets. Everyone who earns an income in the Netherlands pays income tax. People on benefits must also donate a percentage of their income each year. This is called the income tax return and is imposed by the tax authorities.
As a self-employed person, you pay income tax on the profit you make with your company. Your profit consists of the turnover minus the costs. If you are doing this for the first time, it can of course be difficult. That is why we have also prepared a white paper for you in which all steps are discussed. You can find this at the end of the article.
Example: income tax for self-employed persons without employees
You invoice €1,000 and charge 21% VAT on this. You will receive a total of €1,210. Likewise, you pay the VAT (€210) to the tax authorities. The remaining €1000 is the turnover. You have €800 in costs. If you subtract your costs from your turnover, you will have a profit of €200. This profit from business is therefore your gross income and therefore your income before tax.
Tax partnership
If you are a tax partner, you can file an income tax return together with your partner. The advantage of this may be that you can apportion certain deductions. You are a tax partner if you are married, have a registered partnership or have a child together.
Click here for more information about tax partnership.
When do you have to file an income tax return as an entrepreneur?
If you have a company, are a self-employed person, freelancer or SME and you are registered with the Chamber of Commerce, you are not automatically an entrepreneur for income tax purposes. However, every taxpayer in the Netherlands is obliged to file an income tax return. You are an entrepreneur for income tax purposes if you meet the following conditions:
● You are not dependent on one client, in other words you have several clients.
● You are independent and decide for yourself what you do in the company.
● You meet the hour criterion. The hours criterion means that you work at least 1,225 hours per year on your company. Take into account the non-billable hours. These are hours that you spend on activities that do not directly generate money.
If you are an entrepreneur for income tax purposes, you are entitled to tax benefits if you meet the hours criterion. Click here for more information about the hour criterion.
1. Deductible items and tax credits
Tax benefits to which you may be entitled are deductions and tax credits. Deductions reduce your income and ensure that you pay less tax and national insurance contributions. Tax credits are discounts on the tax you have to pay. It is therefore beneficial to know which deductions and tax credits there are and to which you are entitled. By making smart use of the deductions and tax credits of the Tax Authorities, you can earn € 32,193 profit as a self-employed person without having to pay tax on it.
The following deductions are available for self-employed persons:
● Self-employed deduction
● Starter's deduction
● Retirement reserve
● SME profit exemption
● Tax credits
In some cases, you can save even more tax by using, among other things:
● The investment deduction (KIA, MIA, VAMIL, EIA)
● The mortgage interest deduction
● Deductible donations
● Deductible healthcare costs
● Deductible annuity
See the full list of deductions.
2. Self-employed deduction and starters deduction
You are eligible for the self-employed deduction if you earn money from your business. Normally you also have to meet the hours criterion. In 2023, the self-employed deduction will be € 5,030. You may deduct this amount from the profit you have earned from business. If you are a starter, you may increase this amount by € 2,123. You may apply the starters deduction a total of 3 times in the first 5 years of your company.
3. Retirement reserve
From 1 January 2023, the retirement reserve can no longer be built up (further). The retirement reserve that has been built up up to and including 31 December 2022 can still be settled according to the current rules. You can do this with 9.44% of your winnings, with a maximum of €9,632.
4. SME profit exemption
Is your company in the small and medium-sized business category? SME profit exemption is a direct deduction from your profit to which you are then entitled. In 2023, the SME profit exemption will be 14% of the profit, after you have reduced it by the entrepreneur's deduction. In 2023, the deduction of the SME profit exemption will be limited. The benefit is calculated with a rate of 36.93%. You never have to meet the hours criterion for the SME profit exemption.
5. Tax credits
Tax credits are direct discounts on the amount of tax to be paid. You will read for each tax credit whether you are entitled to it or not. For self-employed persons without employees, the general tax credit and the employed person's tax credit are the most important.
6. General tax credit
General tax credit is a credit to which every taxpayer is entitled in the Netherlands. If you have not yet reached state pension age (in 2022 this will be 66 years and 10 months) and you have no other income, this reduction amounts to € 1,583, up to a taxable income from work and home of € 22,661. If your taxable income exceeds € 22,661, but does not exceed € 73,031, you must calculate the general tax credit using a formula.
€ 1,583 - 3.141% x (taxable income from work and home - € 22,660) We show this in the calculation example below. If you have a part-time job in addition to your business, the general tax credit will be applied to your income from your part-time job. This means that you can no longer apply the tax credit to the income from your business.
7. Employed person's tax credit
General tax credit is a credit to which every taxpayer is entitled in the Netherlands. If you have not yet reached state pension age (in 2022 this will be 66 years and 10 months) and you have no other income, this reduction amounts to € 1,583, up to a taxable income from work and home of € 22,661. If your taxable income exceeds € 22,661, but does not exceed € 73,031, you must calculate the general tax credit using a formula.
€ 1,583 - 3.141% x (taxable income from work and home - € 22,660) We show this in the calculation example below. If you have a part-time job in addition to your business, the general tax credit will be applied to your income from your part-time job. This means that you can no longer apply the tax credit to the income from your business.
8. Health Insurance Act premium
As a self-employed person, you must pay an income-related contribution for the Health Insurance Act (ZVW), even if you do not have to pay income tax. This is a social premium and everyone in the Netherlands is obliged to pay it. This premium consists of the amount that you pay to your health insurance yourself and a contribution of 6.68% of your income, on a maximum of € 66,956 taxable profit.
Calculation example income tax 2023
In the calculation example, we show you how to apply deductions and tax credits. We have assumed that you have not yet reached state pension age. Please note that you may not be entitled to one or more deductions.
*Unfortunately, we have not carried out a translation of everything. Please search for the Dutch-English translation.
