Everyone is liable to pay tax. If you are employed, your employer will withhold wage tax every month and you will be paid a net amount. If you are self-employed, you will file your income tax return yourself. In the case of self-employed people who are liable to pay VAT, there is also the turnover tax return.
If you are employed, the employer withholds wage tax and contributions. You receive a gross income that is paid out net. If you have no further expenditure on a mortgage, maintenance, savings or investments, you do not, in principle, have to file a return. Please note that study or healthcare costs, for example, may also be deductible from your taxable income and filing a return may therefore yield benefits.
If you have multiple jobs, it may be wise to file the income tax return. Your employer may have withheld more wage tax than you were actually supposed to have paid. In that case, you will therefore get something back.
If you are self-employed, you file a return so your taxable income can be calculated. If you are self-employed, you will keep records/accounts, and you will draw up the balance sheet and profit and loss account at the end of the year. You need these annual accounts for your income tax return.
Turnover tax or VAT
If you start a business, you must register with the Chamber of Commerce. The Dutch Tax and Customs Administration will determine whether or not you are liable to pay VAT based on your expected turnover. The amount of VAT you have to charge or pay depends on the applicable rate for the service or product you supply: that may be high (21%) or low (9%). In some cases, your service or product will be exempt from VAT.
The VAT return
The VAT return is completely separate from the annual income tax return. In this return, you specify how much you have invoiced and how much VAT you have charged (and thus received) for that. You may subsequently deduct the input tax (the VAT that you paid for your business expenses) from that.
The Small Businesses Scheme
The Small Businesses Scheme (Kleine Ondernemersregeling, KOR) is a discount scheme up to and including 2019 for self-employed people who do not have to pay a lot of VAT. If you have to pay € 1,345 or less in VAT to the Tax and Customs Administration annually, you do not have to pay any VAT at all. If that amount is between € 1,345 and € 1,883, a discount scheme applies.
As from 1 January 2020, the KOR will be organised differently. If you are based in the Netherlands and your turnover is not higher than € 20,000 per year, you can apply for this exemption. In that case you will no longer have any VAT obligations, such as calculating VAT on your invoices and your VAT administration, and you will no longer be able to claim back any VAT for your operating costs. This option applies for three years or until your turnover (about which you are liable for VAT) exceeds € 20,000.
One’s income may fall or rise sharply. In the event of a rise, your income may end up in a higher tax bracket. You will then pay more tax for part of your income. In that case, you can make use of the averaging scheme. You will then calculate an average income over three years. As a result of this, the (higher) income that falls under the higher tax bracket will decrease and you will owe less tax.