Last modified: 21 november 2016
More and more people are working as freelancers. As a freelancer you have more freedom to arrange your work and to benefit of certain tax benefits. The consequence however is that you will have to take care of your own taxes. You will need to make sure that your administration is up to date, VAT returns are filed properly and the correct taxable income is declared in your personal income tax return where you also claim the applicable tax credits. This can be overwhelming and prevent you from doing business. Don't worry, Expatax is here to help you!
The term 'freelancer' is not a definition recognized by law. Below we will use the terms self employed, entrepreneurs and freelancers.
Expatax can help you with your administration, VAT returns and income tax return and make sure that you keep compliant with the rules and claim the available deductions and credits.
Your freelance or self employed situation is defined on the basis of a number of criteria. The following criteria are considered to be applicable if you are an independent freelancer. However, not just these criteria themselves but the interconnection between the criteria and to which degree the criteria are met are important.
There is no real relationship of authority. You have more freedom than a regular employee to organise your work. The client can't determine where, when and how the work should be carried out. The work is carried out at your own risk and expense. If your client is not happy with the work you performed it is your risk if you will not get paid. You are not paid when you don't work. So you do not receive holiday allowance, payment during illness etc.
The aim should be to earn money. It should not be a hobby. You send out invoices to your clients, are registered as a freelancer with the tax authorities, have a VAT number and you keep an administration of all your income and expenses (which could of course be taken care of by Expatax). It is possible that you make a loss in a certain year, but there must be a perspective of making profit.
To the outside world it should be visible that you are self employed. You advertise, have a website and use your own email address. You don't always work at the location of the client. Working every day from 9 to 5 behind a desk at your client, using an email address and telephone number of your client would indicate that you are actually employed and not a freelancer. So important is that you present yourself as a freelancer as much as possible.
The number of clients will indicate whether you work independent or not. If you have only one client impression could be that you depend too much on this client which would be an indication for an employment situation. The same if you have several clients but one of them pays 70% of your income. Short term contracts or projects are normal if you are self employed, a long term contract on which you spend almost all your time looks more like employment.
So there are many factors which must be taken into consideration. The total picture is relevant. Based on one criteria you may be self employed, but based on another criteria you may be employed. Therefore make sure that you meet as many criteria as possible. It is not black and white, but there is a big grey area.
If you work as a freelancer and are considered to be self-employed, your client does not have to deduct social security premiums from your freelance payments. If you are not considered to be self-employed, your client does have to deduct social security premiums.
Freelancers and entrepreneurs have to pay turnover tax and income tax. If you work as a freelancer and are considered to be self-employed, your client does not have to deduct wage tax from your freelance payments.
Turnover tax (VAT)
Anyone who practices a profession independently is considered to be self-employed for the purposes of turnover tax.
Every quarter a VAT return must be filed. VAT is very complex. We can help you with taking care of your VAT obligations.
Your freelance income is taxed with income tax. The income will have to be declared with your other income in the annual income tax return. The three categories of income tax are:
1. Business profits
If the tax authorities consider you to be self-employed, you can declare your freelance income as business profits. Profit is the turnover minus the deductible expenses. Deductible expenses are costs which you made to do business.
Deductible Business Expenses
Any expense which is ordinary and necessary for your trade or business is deductible. Not all expenses, however, are fully deductible.
Here's the most common business expenses that are fully deductible against your business income:
Not all expenses are fully deductible. Some expenses are only partially deductible:
Some business expenses, even though they may be directly related to your trade or profession, are never tax-deductible:
You may be eligible for self-employed persons' tax allowances.
2. Salary from employment contract
If you have an employment contract, the client (= employer) deducts income tax from the freelancer's salary and pays this to the Tax authorities.
3. Freelancing as a secondary activity
Income from work which can't be considered either as salary or as business profits is known as secondary income. This income is known as income from other activities.
Each type of income is taxed in Box 1 based on the standard tax rates.
In general everybody who is working self employed has to register in the trade register of the Chamber of Commerce. When you want to start working as a freelancer the first step is to go to the Chamber of Commerce and register yourself. You will have to choose a business name. Once registered you will automatically get a VAT number from the tax authorities. So you don't have to register twice. This means that it is relatively straight forward to set up your own business this way and cost effective.
Establishment requirements may also apply to certain activities.
The freelancer is in paid employment if:
If the freelancer is in paid employment, he is entitled to rights under Dutch Labour law such as protection from dismissal and the minimum wage.
To get some more security about the fact whether the tax office will treat you as an independent freelancer or a fictitious employee you can work with so called model agreements between yourself and your client. By using the applicable model agreement you can be identified as a freelancer. The tax authorities have published approved model agreements and will continue to do so. It is also possible to create your own agreement which can then be sent to the tax authorities for approval. This can however be a time consuming challenge.
To make some money it's important that you send invoices for the work you did. This must be done before the 15th of the month after the service has been provided by you. An invoice must meet certain requirements to be accepted by the tax authorities. VAT is only deductible if it is mentioned on an invoice which is made according to the rules. So this is important for you and your client.
If you are working as a freelancer you must keep an administration, file VAT returns and file the annual income tax return. This may not be easy, so we can help you with that.
Look at our accounting section to find out more about our services or click on the button below to go to our plans and pricing for freelancers.