Fiscal benefits for entrepreneurs in the income tax

In the Netherlands there are various deductibles, exemptions and other regulations with which the government offers fiscal benefits to entrepreneurs. The question remains, in what situation are you eligible for what? Lexlupa will list the foremost fiscal benefits for entrepreneurs in this article. 

Fiscal benefits entrepreneurs:

Entrepreneurial deduction

Ever since the Law on income tax from 2001, entrepreneurs are compensated with various deductibles with which the tax-free basis is increased or for example, the tax deductions apply on the profit percentage. Below you will find what the deductible posts are with which you, as an entrepreneur will have to deal with. 

Self-employed entrepreneur’s deduction 

What?
Tax deduction on the income tax for which the tax-free basis is increased. 

For whom?
Entrepreneurs that meet the hourly criteria (a minimum of 1225 work hours in the enterprise). 

Pay attention: have you not been able to meet the hourly criteria because of the corona crisis in 2020 or 2021? Then you can make use of the easement of the hourly criteria created for this purpose. 

How?
You can indicate that you are making use of the self-employed entrepreneur’s deduction with your declaration income tax. You will have to keep your own hour administration with which you can demonstrate you meet the requirements of the hourly criteria. 

How much?
The amount for the independent deduction has been set to €6670,- in 2021. The deduction will be reduced annually. Until 2036 the deduction will be reduced with €360,- every year. Are you at the legal retirement age at the beginning of the calendar year? Then an independent deduction of 50% applies. 

Starter’s deduction

What?
Extra tax deductions on income.

For whom?
Starting entrepreneurs: you can apply the starter’s deduction for a maximum of three years if you meet the requirements of the hourly criteria of 1225 hours per year. For this requirement the government has also implemented an easement*for those that are facing difficulties because of the corona crisis. 

How?
To start making use of the starter’s deduction you will have to record your hour administration and report that you are making use of the starter’s deduction with your declaration income tax. 

How much?
In 2021 the starter’s deduction is €2.123,-. When you, as a starter, are entitled to a labor disability benefit, a lower hourly criteria and higher starter’s deduction applies. You can read more about that here*. 

Remaining deductibles for entrepreneurs 

In addition to the abovementioned posts, there are a number of other deductibles which you, as an entrepreneur, can be eligible for. We will name them here briefly: 

Mixed expenses

Several expenses that you as an entrepreneur (so not as a business) make and that are partly for the benefit of your activities are partially deductible. Think for example about company clothing, a brief case, a laptop, professional literature, a business lunch or travel expenses. This also applies to moving or business phone calls from your home. The Tax Authorities have listed those types of expenses here and listed in what capacity and under what conditions they are deductible. 

Deduction Research and development work (WBSO)

When you have invested at least 500 hours in research and development and your work contributes to innovation, you can be entitled to the deduction for research and development for a total amount of € 13.188,- (2021).You will need to request a statement with the RVO* beforehand for the work. 

Cooperation deduction 

Does your fiscal partner work for at least 525 hours for less than €5000 annually (or without pay) in your enterprise? Then you can be entitled to the cooperation deduction. The deduction is dependent of the number of hours that the partner works in the enterprise: 

Number of worked hours	Deduction
525 - 875	1,25% of the profit
875 - 1.225	2% of the profit
1.225 - 1.750	3% of the profit
1.750 or more	4% of the profit

Source: Belastingdienst.nl

Labor reward

When you pay out a compensation of more than €5.000,- to your partner for work that they specifically do for the enterprise, you can deduct that labor reward from the profit. You do not (like with the cooperation deduction) have to meet an hourly criteria. However, the compensation will need to be realistic in comparison to the performed activities. The compensation that is deducted, is taxed with your partner. So, you will only receive fiscal benefits if you fall under a lower tax bracket. 

Suspension deduction 

When you terminate your enterprise and you have made profit over this termination, you will need to pay suspension tax over this profit. You can deduct a maximum of €3.630 in 2021 over this suspension deduction. 

Investment deduction

Company assets in which you, as an entrepreneur, invest in are sometimes partially deductible from your profit. This fiscal benefit has a number of conditions, but can result in significant financial benefits. The investment deduction consists  of three parts:  The investment deduction consists of three parts: the small-scale investment tax deduction (KIA)*, The energy-investment deduction (EIA)*and the environment-investment deduction. (MIA)*. You can read more about that in English, in this article. 

More fiscal benefits entrepreneurs may be entitled to

We have discussed the most important benefits and deductibles up to this point. In addition to tax benefits and deductibles there are several other fiscal benefits for entrepreneurs in the income tax. For most entrepreneurs the SME-exemption is the most important one. Information about this and a few other specific arrangements you can find below. 

SME profit exemption 

What?
Extra tax benefits over the profit percentage 

For whom?
All entrepreneurs that have a company with a staff of 250 or less people. 

How?
With the declaration income tax the Tax Authorities will automatically take the SME profit exemption into consideration. 

How much?
The exemption is 14% of the profit in 2021 (after the other deductibles have been settled). Pay attention: the exemption is beneficial when you have a profit, but works against you when you are making a loss. Because the negative profit amount is lowered with the exemption 

Labor expense arrangement*

What?
An arrangement with which you can use a percentage of the entire wages for compensations and provisions for your employees. This percentage is called free (or lump-sum) space. 

for whom?
Anyone who employs staff. 

How much?
The free space has been set to 1,7% of the fiscal wage up to €400.000,- in 2021. Above this amount the fiscal space is 1,2%

Pay attention: Because of the corona crisis the free space has been expanded (temporarily) to 3%*. With this you can compensate your employer for, for example, the expenses for working from home, tax free. 

Old-age reserve (FOR)*

What?
Entrepreneurs can reserve a part of their profit as their old-age reserve for the income tax. You will not have to actually save any money, but you reserve a part of the profit, granting you a tax benefit. 

For whom
Entrepreneurs that are younger than the retirement age, except entrepreneurs for the partnership tax. 

How?
With the purchase of an annuity with an insurer or saving with a bank for your retirement. The paid taxes can be postponed until the moment you will receive the money.  

how much?
The addition of your old age reserve is 9,44% over a calendar with profit, with a maximum of  € 9.395 in 2021. 

Pay attention: the fiscal old-age reserve is not a benefit or deductible, but a way to postpone tax payment. It is not always in your benefit to make use of this arrangement, because with the exemption of the reserve you will pay more taxes. 

In conclusion

Conditions, deductibles, deductible percentages and exemptions with fiscal regulations are continuously in motion and therefore, subject to change. Make sure to always check the Tax Authorities’ website, the RVO or the information your tax consultant or advisor gives you, so you remain up to date. This way you ensure that you make use of the fiscal benefits in a smart and legal manner that applies to your unique situation.  

Would you like to know more? 

In addition to the fiscal benefits that you can be eligible for as an entrepreneur, there are also several arrangements that you could encounter as a private individual. In this article Lexlupa has listed the most important benefits for private individuals. Are you (also) filing your taxes in the partnership tax? Then, you can find the most important benefits for which you could be entitled to, here. For more detailed information about what benefits apply to your situation, you can go to the start page for deduction and benefits on belastingdienst.nl, or ask your tax consultant. Contact us with any other questions, we are more than happy to help! 

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