If you are not employed, you do commissioned work. You can organize this in different ways. The tax authorities then assess whether you are an self-employed entrepreneur or a 'Resultaatgenieter' (freelancer) and this influences how your income is taxed.
Criteria for self-employed entrepreneurship
The Tax Administration will investigate whether you fulfil certain requirements before classifying you as a self-employed entrepreneur for the income tax.
- 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). You might not make much profit when you start, but if it takes too long to make a profit, the Tax Administration might not treat you as a self-employed entrepreneur.
- You have at least three clients
The relation between the assignments is also of importance. If 70% of your income comes from one client the Tax Administration might not treat you as a self-employed entrepreneur.
- 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 a self-employed entrepreneur and you can take advantage of tax benefits such as deduction of expenses, deduction for investment and the SME profit exemption. 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.
- 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.
The Tax Administration also checks that you are offering your services actively allthough this is not the most important issue:
- You promote and publicise your services
You have to make it clear to the Tax Administration that you present yourself as an entrepreneur. So you have to advertise or do acquisition: for example by making a website, advertisements, printed matter (leaflets, business cards etc.) and by networking.
Income from freelance jobs
If you do not fulfil the requirements above, the Tax Administration will register you as a 'resultaatgenieter' (freelancer). You can easily combine this with working for an employer because there is no minimum of hours required. How your fee for your freelance work is paid can vary from job to job. You can choose between taxation under the 'profit system' or the 'PAYE system'. Or you can consider payrolling.
The PAYE system (opting-in)
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
You 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. 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.
A model agreement provides clarity about the tax status of your employment relationship. You and your client can use model agreements approved by the Tax and Customs Administration. In that case, the client does not have to withhold and pay payroll taxes.
No enforcement until 2025
Since the start of the DBA Act, it has become clear that the labor legislation no longer matches current practice for clients and contractors. Enforcement of the law has therefore been suspended. The Tax and Customs Administration does enforce against malicious parties. Work is being done to replace this law. In the future, a client can use a web module to request a client statement that offers certainty in advance about being exempt from payroll tax and employee insurance premiums.