Do you qualify as an entrepreneur for income taxes?
Owning a business doesn’t automatically mean you are an entrepreneur for income tax purposes. Do the tax authorities see you as an entrepreneur or not? There are different criteria for this. No, these aren’t set rules. The tax authorities often check it on an individual basis. The criteria below are purely guidelines. If you meet most of them, chances are that you will be seen as an entrepreneur for income tax purposes. If you meet none or only a few of the criteria, chances are that you still have some work to do before you can call yourself an entrepreneur for income tax purposes.
Are you able to make independent decisions about your business? You are self-employed and independent of a manager or employer. So you can decide for yourself how, when and where you are working, for example.
Independence can be strengthened by having multiple clients. An example is a copywriter who writes articles for several companies.
Are you actively seeking (new) assignments? This is another positive in the eyes of the tax authorities.
Having enough money to keep your business running is important. As an entrepreneur, you need to be able to invest in equipment, insurance, and perhaps advertisements to reach more clients.
Is it your own problem if clients don’t pay or if you don’t finish an assignment on time due to illness, for example? Then you are running entrepreneurial risk and the tax authorities are more likely to see you as a true entrepreneur.
As already explained, these are some guidelines that the tax authorities look at. Would you like more information? Fill out the entrepreneur check to see whether you are considered as an entrepreneur for income tax purposes.
Entrepreneur and non-entrepreneur
Now we know that you can be a self-employed entrepreneur and not qualify as an entrepreneur for income tax purposes. But how do the tax authorities deal with this? If you are registered as a self-employed entrepreneur with the KvK, you are in most cases an entrepreneur for the sales tax (VAT). Regardless of whether you qualify as an entrepreneur for income tax, you must file VAT and income tax returns. The difference between being seen as an entrepreneur or not lies in whether your income is seen as profit from a business or as a result of other activities. In both cases, you are liable for VAT and income tax. As an entrepreneur for income tax purposes, you are also entitled to several deductions, which you otherwise cannot claim.
For example, you are eligible for the self-employed entrepreneur deduction if you meet the hour criteria of 1.225 hours. This allows a fixed amount to be deducted from your profit, which means you have to pay less income tax. The same applies to the small-scale investment deduction. A percentage of your purchase costs for business assets, such as laptops and tablets, can also be deducted from your profit. As a starting entrepreneur, you receive assistance from the tax authorities in the form of an additional deduction (the starters deduction) These are all examples of entrepreneurial facilities, which unfortunately you cannot use if you do not qualify as an entrepreneur for income tax purposes, and that can make a big difference in the income tax return.
Every self-employed entrepreneur who meets the hour criteria is entitled to, for example, the self-employed entrepreneur deduction of €5.030. And the starter deduction can be applied for three years in the first five years. This is a deduction that lowers your taxable profit, amounting to €2.123 (2023). If you invest more than €2.601 (2023) in business assets in a tax year, you are entitled to an additional deduction of 28% (2023) of the invested amount, up to a certain limit. The small to medium-sized business deduction (MKB-winstvrijstelling) is available to everyone who qualifies as an entrepreneur for income tax. This exemption is 14% (2023) of your profit after all previous deductions have been applied.
All the information in even simpler words
It’s quite a lot of information, so let’s summarize it in a nutshell.
The tax authorities might see you as a self-employed entrepreneur for income tax purposes if:
- You are independent
- You have several clients
- You’re actively looking for new clients
- You have enough capital/money
- You run entrepreneurial risk
If you are in fact an entrepreneur for income tax purposes, your taxes look like this:
- Income tax
- Sales tax
- You may use entrepreneurial facilities
We are happy to help!
Still have questions after reading this information? Tax remains a difficult topic for many. How does the starter deduction work and what is the difference between sales tax and income tax? Very common questions to ask. Thankfully, we are here to help you with that. Feel free to contact us or fill out our contact form.
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