Working to order
If you do not work with an employment contract, you are either self-employed or working freelance. Only as a self-employed person, you can claim certain tax benefits. Most artists start working freelance and apply later for registration as a self-employed person at the Tax Administration.
Criteria for self-employment
The Tax Administration will investigate whether you fulfil certain requirements before classifying you as being self-employed. Being self-employed offers a number of tax benefits, such as the right to claim self-employment tax allowance, investment allowance and pension provision allowance.
The main criteria and how to provide the necessary proof:
1. Intention: to make profit
You intend to make a profit by earning money from practising your profession, not from being employed but to work on your own account, if applicable under the Performance Artist's Tax Regime (artiestenregeling).
2. You have at least three clients
The relation between the assignments is also of importance. If 90% of your income comes from one client, and the other 10% comes from the other two, the Tax Administration might not treat you as an entrepreneur.
3. Entrepreneurial risk
One risk is the chance that you will stop receiving work and the other is the so-called debtor risk: the chance that you will not be paid for the work you did.
If you satisfy these criteria, you are an entrepreneur and can take advantage of tax benefits such as deduction of expenses and deduction for investment. If you also want to benefit from the deduction for entrepreneurs and the deduction for enterprises that are starting up (max. 3 years), you must also satisfy the number of hours requirement.
4. Criterion of hours
You have to work at least 1225 hours a year and devote at least 50% of your working time to your own business. Realize this if you also work with an employment contract. If you work only one or two days a week for an employer all year, it should be easy to claim self-employment for the rest of the time. That is more difficult if you are in employment for (much) more than two days a week.
5. You promote and publicise your services
You have to make it clear to the Tax Administration that you are offering your services actively. So you have to advertise: for example by making a website, advertisements, printed matter (leaflets, business cards etc.) and by networking. Collect evidence.
If you do not fulfil the above requirements, you are working freelance. You can easily combine this with working for an employer because there is no minimum of hours required. How your freelance income is paid can vary from job to job. You can choose between taxation under the 'profit system' or the 'PAYE system'.
The PAYE system
You agree with your client that it withholds tax and social insurance premiums at source, a so-called 'PAYE opt-in'. Under this, you do not need to keep books since your income is taxed as if you were an employee. You cannot offset the costs that you incur against tax, but the client may reimburse some out-of-pocket expenses – meals, for instance – tax-free. At the end of the year, you receive an annual statement of income from the client. You are not insured for unemployment or incapacity for work.
The profit system
Your income is taxed as 'earnings from other work'. You are responsible for paying the income tax on this after the end of the calendar year. You must submit invoices for your work and keep books, and you can offset most of your costs against tax. However, you cannot make use of the tax facilities for self-employed people.
Note that, if you are a performance artist with a VAR stating that your income counts as 'earnings from other work' (VAR-ruow), your fees must be paid in accordance with the Performance Artist's Tax Regime (artiestenregeling). The venue can do this but you can also ask a payment bureau. In that case you need a fess statement form (gageverklaring) for payment.
The profit system is effective for other work, though – for example, if you receive income from commissions or teaching.
Working Relationship Declaration (Verklaring Arbeids Relatie, VAR)
If you carry out work as a supplier to a client rather than being employed, you can or must apply to the Tax Administration for a Working Relationship Declaration (Verklaring Arbeids Relatie, VAR). Both freelancers and self-employed people can do this. A VAR clarifies the tax status of your working relationship and affects the payments you have to make.