Are you uncertain as to whether the Dutch government considers your business to be “legitimate” and taxable, or a non-taxable hobby? Tax is Exciting is here to clarify the distinction between a Dutch corporation and a “hobby.”
Tax-wise, starting a business may be a difficult and unpleasant experience. According to the Dutch Tax Authorities, a large number of entrepreneurs end up operating what they believe to be a genuine business, but which is essentially a hobby (Belastingdienst). Whether or whether your business is liable to income tax relies on a number of criteria and your personal situation.
low employee turnover
A customer who was a Reiki practitioner and who filed her own tax returns was one example. The employee turnover rate was practically nonexistent. As the therapy took place in her home, all home-related expenses, including rent, water, energy, furniture, and food, were deducted from her tax return.
Strangely, there was never an audit. As a result, tax consultants swiftly notified the therapist that the source of income was not subject to taxation since it is categorized as a pastime and not a business.
The Reiki practitioner was stunned and relieved. She was relieved that neither Value-Added-Tax (VAT) nor entrepreneur income tax returns were needed of her.
A business devoid of an entrepreneur
Another organization that frequently feels it is a corporation when it is not is one that seeks to launch a business using investor funds. Frequently, a company’s business partner gets changed into an investor.
Since the company’s funds belong to another person or organization, employees are more prone to take unnecessary risks and waste their money. These individuals are not regarded as actual entrepreneurs.
The Dutch Chamber of Commerce was notified in 2007 of the incorporation of a business that traded in bicycles and bicycle components. From 2016 to 2019, the overall turnover rate reported on their Value Added Tax return was 190 euros, with a VAT reclaimable amount of 2,899.
The Belastingdienst disallowed the VAT refund, therefore the 190 euros were due nonetheless. In addition, the Belastingdienst imposed a 10% penalty, which was kind of a “losers’ penalty.” Normal penalties begin at 25%.
This person appeared in court for this subject. The court required them to provide evidence for the promoted firm operations. The individual did not provide a straight response to any of these inquiries, save for the fact that they attended and were reimbursed for comprehensive courses.
The court determined that the individual’s “corporation” was not a real business that could be declared on a tax return, but rather a pastime.
The court decided that no activities or investments were done to incorporate the business into economic activity. Hence, the Belastingdienst categorized the individual’s “enterprise” as a pastime rather than a source of revenue.
Is it a business or a pastime?
How do you determine whether your actions constitute a business or a pastime? The activity must first serve as a source of money. Initially, you may experience a few difficult years, but if you are unable to generate a profit after three years, it is considered a pastime.
If your hobbies create revenue, but it does not exceed €2,000 per year, then they are also regarded a pastime. Typically, such “businesses” are run with full-time jobs. Often, the revenue from a regular job is used to finance a pastime as well. The pastime may be claimed as a tax-deductible, at which point the Belastingdienst becomes involved.