If you’re planning to relocate to the Netherlands and either continue your freelance career or start a new business, it’s important to choose the right business structure for tax efficiency. TaxSight explains your options and the tax benefits available to newcomers.
Choosing the right business structure
In the Netherlands, two common business structures are widely used:
- Sole proprietorship (Eenmanszaak)
- Limited Liability Company (B.V.), which may allow you to apply for the 30% tax ruling.
Sole proprietorship: simple, but with higher taxes
A sole proprietorship is a straightforward structure where the business is directly linked to the owner. As the owner, you’re personally liable for the company’s obligations and taxes. After deducting business costs, your profits are taxed through your personal income tax return.
Tax credits for sole proprietorships
As a sole proprietor, you can take advantage of tax deductions such as:
- The small business exemption: this provides a 14% deduction of your gross profit (meaning only 86% of the profit is taxed).
- Self-employed tax deduction: for 2021, this is €6,670, plus an additional €2,123 for the first three years of your business. However, to qualify for these deductions, you must spend at least 1,225 hours on your business activities in the calendar year, including direct work, travel, and administrative tasks.
Although a sole proprietorship is easier to set up (just a registration with the Chamber of Commerce), the full profit is taxed in the same year, which can lead to higher taxes compared to a B.V.
Limited liability company (B.V.) and the 30% tax ruling
Another option is to operate as a B.V., where you can pay yourself a salary and possibly apply for the 30% tax ruling, provided you meet the requirements. A B.V. is treated as a separate legal entity, and its tax obligations are distinct from those of a sole proprietorship.
Obligations of a B.V.
A B.V. must fulfill several requirements, such as:
- Filing monthly payroll tax returns
- Quarterly VAT returns
- Annual corporate income tax return
- Annual filings with the Chamber of Commerce
Salary obligations for shareholders in a B.V.
If you own 5% or more of a B.V., you are required to receive a salary if you perform work for the company. The B.V. must withhold wage tax on this salary. The minimum required salary is €47,000 gross annually (as of 2021), although an exception may apply if the business has limited income or the work performed is minimal.
The 30% tax ruling: a key benefit for expat entrepreneurs
To qualify for the 30% tax ruling, your salary must be at least €38,961 (as of 2021). The 30% ruling can reduce your tax burden by taxing only 70% of your salary.
Here are the tax rates for 2021:
- Up to €68,507: 37.10%
- Over €68,507: 49.50%
Additional benefits of the 30% ruling
With the 30% ruling, you can apply for partial non-resident taxpayer status. This status allows you to exempt income from savings and investments (Box 3) from Dutch income tax. However, property located in the Netherlands is still taxable.
If you’re a substantial shareholder (owning 5% or more of the shares in a foreign company), dividends received while under the 30% ruling are exempt from Dutch taxes.
B.V. taxes and dividend distribution
After the B.V. deducts its costs, the remaining profit is taxed. The corporate tax rates for 2021 are:
- 15% on the first €245,000 of taxable profit
- 25% on profits exceeding €245,000
Once the taxes are paid, the net profit can be distributed as dividends to shareholders. The dividend tax withheld by the B.V. is 15%, plus an additional 11.90% in **Box 2** of the shareholder’s personal income tax return, resulting in a total tax rate of **26.90%** for dividends under €67,804.
If the 30% tax ruling applies, it may be more advantageous to distribute additional salary rather than dividends, as it can result in lower overall tax rates.
Why choose a B.V. with the 30% ruling?
The B.V. structure, especially in combination with the 30% ruling, can be a good option for entrepreneurs planning for business growth. This structure offers more flexibility in terms of salary and dividend payments and may be more tax-efficient for those with higher earnings.
Note that if you choose to operate as a sole proprietorship, you won’t be able to apply for the 30% ruling later on.
Need help with tax matters?
If you need assistance with setting up your business structure or understanding tax implications in the Netherlands, Taxsight is here to help. With years of experience in both local and international tax issues, their team can provide tailored tax advice for your needs.
