Sole proprietorship in the Netherlands and taxes

When you register a business in the Netherlands, you have to consider the tax you have to pay. For sole proprietorships, there are actually two types of tax, but also all kinds of handy deductions you can make use of.  As an entrepreneur in the Netherlands, it is important to have a basic knowledge of the taxes you have to pay as a business owner. Especially as you will come into contact with these throughout the year.

What is a sole proprietorship according to Dutch law?

A sole proprietorship (eenmanszaak) is a legal form where you are solely responsible for the business. With a sole proprietorship, you are privately liable for the business debts. You can set a maximum of one sole proprietorship under Dutch law. However, it can have different trade names, activities and branches.

Registering a sole proprietorship with Firm24, how does it work?

Registering a sole proprietorship can be easily done via The Netherlands Chamber of Commerce (‘KVK’). After filling in your details, the digital identification begins. Since Covid-19, the KVK schedules few appointments , making FIRM24’s digital identification and all-digital process the perfect solution. You can opt for fast incorporation of five working days or the ‘regular’ incorporation of seven working days. After payment, you will immediately receive an email to start the digital identification and signing process. After digitally signing the KVK form, the notary will process the application. You will receive a notification once the application has been sent to the Chamber of Commerce for registration.

What kind of tax do I have to pay with a sole proprietorship in the Netherlands?

With a Dutch sole proprietorship, you will have to pay two types of tax: sales tax and income tax. Also, you are obliged to pay VAT on turnover and also income tax on profits.

How much is income tax with sole proprietorship in 2023?

In the Netherlands, income tax is paid on two levels in 2023. In the first, you have to pay an income tax rate of 36,93% on your income up to €73,031. In the second level, the tax rate is 49,50% for everything of your income above €73,031.

Example

Suppose you earn €100,000 a year as an entrepreneur as income. Then you will pay 36.93% tax on the first €73,031. This amounts to an amount of €26,970.34. On the remaining €26,969, you will have to remit tax at a rate of 49.50%. This amounts to €13,348.66. The total tax of the initial €100,000 therefore comes to a total of €40,320.00.

How much is VAT in the Netherlands?

When you are considered an entrepreneur by the tax authorities, you pay sales tax, or VAT. There are different rates of VAT, namely 21%, 9% or 0%. The standard VAT rate is 21%, but the 9% rate applies to some goods and services such as food and the services of a hairdresser. Professions such as nurses or physiotherapists are exempt from VAT. The VAT you receive from customers must be paid to the Dutch tax authorities, but you do offset this against the VAT you have paid yourself. You file your turnover tax return every three months with your personal VAT identification number. If the revenue of your Dutch sole proprietorship is less than €20,000 a year, you do not have to pay VAT because of the small business scheme (kleine ondernemingsregeling).

What is the tax advantage you get from a Dutch sole proprietorship?

In a sole proprietorship, it is possible to make use of several advantageous tax deductions. If you meet the hour criterion, there are four deduction you can make use of: the self-employed deduction (zelfstandigenaftrek), the start-up deduction (startersaftrek), the deduction for research and development work (aftrek voor speur- en ontwikkelingswerk) and the cooperation deduction (meewerkaftrek).

You meet the hour criterium when:

• You spend at least 1225 hours in your business annually. This apples per calendar year. So if you register a Dutch sole proprietorship in the middle of the calendar year, you still have to work at least 1225 hours before the end of the year. 
• You spend more than 50% of your total working time in the business. This does not apply if you were not an entrepreneur in any of the previous five years.

Please note that both conditions must be met to meet the hours criterion.

There is also the ‘SME profit exemption’ (MKB-winstvrijstelling). You can use the ‘SME profit exemption’ if you are an entrepreneur. The exemption reduces your taxable profit by 14%. However, the profit must first be reduced by the deductions by the above deductions before 14% is deducted.

In conclusion (recommended)

Which legal form best suits you depends entirely on your own situation and what your intentions are with your business. Many entrepreneurs therefore choose to have a brief sparring session with one of our advisers. This is completely free of charge and can be scheduled via this link.