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What taxes do I pay as a sole proprietor?

Taxes for sole proprieto
What taxes do you pay as a sole proprietor? Read all about taxes and deductions for sole traders here.

Once you have started a business, there are many things to consider, one of which is the tax you have to pay and everything that comes with it. Many entrepreneurs start their business in the form of a sole proprietorship (zzp) and then grow into, for example, a limited liability company (bv). The bv is the Dutch variant of what is commonly referred to as an LLC. Like this form of business a bv has a limited liability compared to other forms of business like the sole proprietorship. Especially in this first phase of the business, it is sometimes unclear which obligations need to be met and how much money you need to set aside for the tax authorities.

As a sole proprietor, there are two taxes you have to pay. These are income tax and turnover tax. Income tax has to be paid on the profits of the sole proprietorship. In turnover tax, VAT has to be paid on the turnover.

Income tax sole proprietorship (zzp'er)

The (taxable) profit you make as a self-employed person is taxed in income tax. This means the taxable profit is taxed at the same rates as the wages one might receive from employment. The advantage of a sole proprietorship is that you are allowed to deduct some tax deductions from the profit (that a bv can’t make use of), reducing the taxable profit and therefore the amount of tax you have to pay.

Once you subtract all the deductions you are entitled to from the profit, you arrive at the taxable profit from business. The taxable profit is taxed in Box 1. In 2024, box 1 of the income tax is structured as follows:

Box 1

Income

Rate

Bracket 1

€ 0 to € 38.098

36,97%

Bracket 2

€ 38.099 to € 75.518

36,97%

Bracket 3

From € 75.518

49,50%

 

Deductions for self-employed persons

When you have a sole proprietorship, you can make use of various deductions to reduce your taxes. As a result, you will have to pay less income tax.

Small-scale investment deduction (KIA)

When you start a business, investments are often made in the early stages to run the business, which can be high in cost. You can deduct the depreciation of these investments as costs from your turnover over a 5-year period. On top of this, you have the small-scale investment deduction (KIA). This scheme ensures that for an investment above €2800 (ex VAT) on an annual basis, you may deduct another x percentage of the investment amount as costs from your profit, so you pay less tax. Only investments over €450 (ex VAT) are considered investments. The amount of the KIA depends on the amount invested, the table below shows how much deduction you are entitled to with regard to investments:

More than

But no more than

The KIA amounts to

€ 0

€ 2.800

€ 0

€ 2.800

€ 69.765

28% of the investment amount

€ 69.765

€ 129.194

€ 19.535

€ 129.194

€ 387.580

€ 19.535- (7,56%*(investment-€ 129.194))

€ 387.580

€ 0

* Numbers and rates are based on 2024 Dutch laws and regulations

Entrepreneurs' deduction

You may make use of the entrepreneurs' deduction if you meet a number of requirements. The first requirement is the hour criterion. You meet the hours criterion when you:

  • Spend a minimum of 1225 hours per calendar year on your business (if you start mid-calendar year, you must still meet the 1225 hours) and;
  • Substantially spend your time doing work for your business or the entrepreneur was not an entrepreneur in one or more of the previous five previous calendar years.

If you meet the hour criterion as an entrepreneur, you may be entitled to the self-employed deduction, the start-up deduction and the cooperation deduction.

Self-employed deduction

The self-employed deduction is a deduction you can deduct from (taxable) profits. The self-employed deduction amounts to €3,750 in 2024, in the coming years it will be reduced to just €900 in 2027. You are entitled to the self-employed deduction if you are a entrepreneur who meets the hours criterion .

Starter deduction

If you are entitled to the starter deduction and you started your business in the last five years, you may still be entitled to the starter deduction. You are entitled to the starter deduction three times in the first five years after starting your business. The starter deduction amounts to €2,123 in 2024.

Working partner's deduction

You are entitled to the Working partner's deduction if you are an entrepreneur who meets the hours criterion and your partner without remuneration performs work in a company from which you, as an entrepreneur, earn profits. The amount of the working partner's deduction depends on the number of hours the partner works in the company, below you can see how much working partner's deduction you may be entitled to:

Equal or more than

But less than

Working partner's deduction

525 hours

875 hours

1.25% of profits

875 hours

1225 hours

2% of profits

1225 hours

1750 hours

3% of profits

1750 hours

4% of profits

SME profit exemption

Lastly, as an entrepreneur you are also entitled to the Small/middle entrepreneurs profit exemption. When you have deducted all the above deductions, to which you are entitled, from the profit, you may calculate the SME profit exemption on the remaining profit. The SME profit exemption is 13.31% in 2024.

 

Tax credits with a sole proprietorship

As a sole proprietor, you are entitled to the same tax credits as employed people. These tax credits are the general tax credit and the labour levy rebate.

General levy rebate

Every taxpayer is entitled to the general levy rebate. The general levy rebate in 2024 is as follows:

Taxable income

General levy rebate

Up to € 24.813

€ 3.362

From € 24.813 to € 75.518

€ 3.362 – (6,630% * (Taxable income – € 24.812))

From € 75.518

€ 0

Labour rebate

The labour tax rebate applies to any taxpayer who receives labour income. This is different from the general levy rebate where you only have to be a taxpayer. As an entrepreneur with a sole proprietorship, you enjoy labour income and are therefore also entitled to labour tax rebates. The table below shows how much labour tax rebate you are entitled to when you enjoy labour income:

Income from employment

Labour rebate

Up to € 11.491

8,425% * Income from employment

From € 11.491 to € 24.821

€ 968 + (31,433% * (Income from employment – € 11.490))

From € 24.821 to € 39.958

€ 5.158 + (2,471% * (Income from employment – € 24.820))

From € 39.958 to € 124.935

€ 5.532 – 6,510% * (Income from employment – € 39.957)

From € 124.935

€ 0

 

Tax calculation for self-employed

Below is an example of how to calculate your taxes as a sole proprietor. 

Posts sole proprietorship

Amount

Turnover

€ 38.000

Costs

-€ 8.000

Profit

€ 30.000

Self-employed deduction

-€ 3.750

Starter deduction

-€ 2.123

Working partner's deduction

€ 0

Total deductions

-€ 5.873

SME profit exemption (€30.000-€5.873) *13,31%

-€ 3.211

Taxable Business Profit

€ 20.916

Tax to be paid (20,916*36.97%)

€ 7.732

General levy rebate (€20.916<€24.813)

-€ 3.362

Employment tax credit (€968 + (31.433% * (€20,916 - €11,490))

-€ 3.931

Income tax to be paid (Box 1)

€ 439

 

VAT

If you are an entrepreneur then you are also required to file a turnover tax (VAT) declaration. Turnover tax has three rates: 21%, 9% and 0%. 21% is the standard rate and is also the rate most entrepreneurs are required to charge. There are exceptions to this rate when a lower rate may be applied, such as the 9% rate. The 9% rate applies to, among others: food, medicine and aids, art & antiques and books. Some services are also taxed at the 9% rate, some examples are: various repair services, hairdressing activities, provision of sleeping facilities and passenger transport.

On your sales or services, you have to pay a certain rate. In return, you may deduct the VAT charged to you. You may offset the VAT received and paid against each other. The balance of this is the final amount you have to pay or can reclaim in VAT.

Declaration period

VAT return should be done more often than once at the end of the year. VAT returns are usually done quarterly. In some cases, when, for example, turnover is very high or you repeatedly submit late returns or payments, it may be imposed by the tax authorities that VAT returns must be submitted on a monthly basis.

Small Businesses Scheme (KOR)

If your turnover, for example as a starting entrepreneur, is below €20,000 per year, you can make use of the KOR. You will then not have to charge or remit VAT. The KOR must be applied for by the entrepreneur and must then be maintained for at least 3 years, unless you exceed €20,000 turnover in these 3 years. If you have applied for the KOR, you no longer have to file a VAT return. If you exceed the limit of €20,000 on an annual basis, you must report this to the tax authorities. They will then reactivate your VAT number and inform you about the VAT returns you need to submit. 

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