All entrepreneurs and freelancers are required to complete an income tax return each year. Normally you will receive an invitation for this at the start of the year. The standard deadline for submission is 1 April.
Just like salaried employees, entrepreneurs are required to pay tax on their earnings. Salaried employees receive a useful summary of their income each year and can even download a pre-completed return from the Tax Administration website. Unfortunately, this process is much more involved for entrepreneurs.
Before you can even start your tax return, you have to prepare a balance sheet for 1 January and 31 December of that year. This must include information such as what furniture and equipment you have, your stock, your customers’ debts to you and what you owe in, for example, VAT and to suppliers.
You also need a profit and loss account. This is a calculation of your profit based on one of the permitted methods. Yes, that’s right; there are rules for this too – rules of sound business practice.
Lastly, you need a capital comparison, which you will also use to calculate your profit. Needless to say that these two methods of profit calculation must produce the same result.
Once you have all of these, you can start your return. To maximise your profitably, there are different arrangements in place that you might be eligible for; for example, the entrepreneur’s allowance, the relief for new businesses and the investment tax credit. All of these arrangements are intended to promote entrepreneurship. However, not every entrepreneur is aware of them. So seek advice if you want to maximise your profitability.
For the income tax return, you must declare not only your earnings in the Netherlands, but also your earnings in other countries and your assets worldwide (e.g. houses, money and shares). If your earnings are already taxed in another country, the Dutch Tax Administration will take this into account by giving you a discount on your income tax.
ZVW (Dutch Healthcare Insurance Act)
The ZVW or Dutch Healthcare Insurance Act is an arrangement whereby you pay a contribution towards the costs of the healthcare via your income. The amount you have to pay depends on your earnings. Salaried employees are fortunate because their employer pays these for them. Entrepreneurs and freelancers, however, must pay these themselves. The percentage varies between 5 and 6% of your income.
People who are often exempt from paying income tax because they have a low income are required to pay ZVW contributions.
People who live in the Netherlands and have a low income may be eligible for an allowance towards the costs renting a house, healthcare insurance and possible child care. The amounts are paid out in advance based on an estimate of the annual income. You will receive a definitive decision on this automatically after submitting your income tax return. If you have received too much, you will be required to pay back the excess. If you have received too little, you will be paid the relevant amount owing.