Frequently asked questions on income tax

Not every side income is a business. What counts is independence, the scale of the activities, the profit expectation, the risk you run, your liability and the number of clients. If you fall short, your income is usually treated as income from other activities. That sits in the same box 1, but without the entrepreneur reliefs and without the SME profit exemption. The distinction directly determines what you pay.

You meet it if you spend at least 1,225 hours a calendar year on your business, roughly 24 hours a week (article 3.6 Dutch Income Tax Act). If you also hold a job, a second test applies: more than half of all your working time must go to the business. Travel time for your employment counts towards the employment side, which makes the test sharper than people expect. Without an hours record it is hard to prove.

The entrepreneur allowance covers, among others, the self-employed deduction, the starter's deduction, the R&D deduction, the co-working partner's deduction and the cessation relief. On top of that comes the SME profit exemption, a percentage of the profit. Most of the allowance requires the hours criterion; the SME profit exemption does not. Two things to know: the self-employed deduction and the SME profit exemption have been reduced step by step for years, and both are set off at a capped rate. The benefit is therefore smaller than the headline amount suggests.

No. Until and including 2022 an entrepreneur meeting the hours criterion could build up a fiscal retirement reserve (FOR) against profit. Building it up further has not been possible since. A reserve formed before 2023 remains and still has to be settled: on cessation, on conversion into an annuity, or as soon as it exceeds the business assets. That is where it goes wrong in practice: there is still a tax claim on that item, and many entrepreneurs lose sight of it.

Usually not. The first question is whether the home belongs to your business assets or your private assets. If the home including the workspace is private, the costs of that workspace are in principle not deductible (article 3.16 Dutch Income Tax Act). And that reaches far: energy, flooring, decorating and the entire furnishing are covered too. There is one exception, with two conditions that must both be met: the space must be a self-contained part of the home, with its own entrance and its own facilities, and you must earn a substantial part of your income in or from that space. A desk in the attic almost never qualifies.

That is a choice within the asset allocation rules, and you make it when you buy. If the car goes into the business, all running costs are deductible and an addition for private use applies. That addition is never higher than the actual cost of the car, which matters a lot with an older vehicle. If you demonstrably drive fewer than 500 private kilometres a year the addition does not apply, but then a watertight mileage log is essential. If you keep the car private, you charge a per-kilometre allowance to the business.

The income tax return covers a calendar year and is in principle due before 1 May of the following year. If you work with an adviser, an extension can be arranged through the scheme for tax agents, under which returns are filed spread across the year. Filing late is not without consequence: the inspector can impose a penalty for failing to file or filing late (article 67a of the Dutch General Tax Act). If no return is filed at all, an estimated assessment follows, and the burden of proof shifts to you.

In a BV the profit is subject to corporate income tax. What you pay yourself is salary, with the customary salary as a floor, or dividend in box 2. The entrepreneur reliefs and the SME profit exemption fall away: they belong to business profit, not to a BV. Whether the switch pays off depends on your profit level, on what you need to live on and on what you can leave inside the company. Run the numbers before you convert. Reversing it costs more than the conversion itself.