TAX IMPLICATIONS IN THE NETHERLANDS
Determination taxable profit
Once you have determined your business profit, you probably wonder: How much taxes do I have to pay?
There is a difference between the gross business profit and the taxable profit. As an entrepreneur, you are entitled to several tax advantages. These advantages reduce the taxable profit.
1. Investment deduction
Any asset you purchase for the company with a value of more than € 450 is considered to be an investment. In general, investments must be depreciated in 5 years. The annual depreciation is an expense for the company, not the purchase price.
If you invest for more than € 2,300 per calendar year in your company, you are entitled to the investment deduction. The investment deduction consists of a deduction of 28% of the total sum of investments made in a year. If the total sum of investments in a year exceeds € 56,642, the investment deduction decreases. It may therefore be interesting to expedite or postpone your investments to the next calendar year to take full advantage of the investment deduction.
2. Deductions depending on minimum time spent
Entrepreneurs not operating through a B.V., who spend more than 1225 hours per annum on their business, are entitled to the self-employment deduction and the retirement reservation.
In order to come to 1225 hours, all hours are included; not only the billable hours, but also the hours spent on travel, acquisition, research. It is therefore important to keep track of your hours made for the company.
The 1225 hours apply to the calendar year and will not be recalculated pro rata should you start your business in the cause of the year.
3. Self-employment deduction
The self-employment deduction amounts to € 7,280 but will not be more than your gross profit. In case your gross profit is less than € 7,280, the remaining deduction will be carried forward to the next year.
For the first 3 years of your business, the self-employment deduction is increased to € 9,403 in total. For these 3 years, the deduction can be offset against your gross profit, regardless of the amount of your profit.
4. Retirement reservation
You can deduct 9.44% of your company profit for retirement savings, but no more than € 8,775 per annum. You do not actually have to put this money into a retirement fund, but upon closure of the company the tax office requires you to transfer the full amount of retirement savings into a pension plan. If you do not want to or you are unable to pay the funds into a pension plan, the full amount will be added to your taxable profit. The pension reservation can never be higher than the equity the business has.
5. Small companies discount
There is also a discount for small companies. After considering all the above listed deductions, the remaining profit is reduced with 14%, to come to a taxable profit.