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.
Averaging scheme (expired)
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.
As of 1 January 2023, the averaging scheme has been abolished. The last time slot you can average over is 2022, 2023, and 2024.
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 for self-employed persons who do not have to pay a lot of VAT. If you are located in the Netherlands and your turnover does not exceed € 20,000 per year, you can apply for a VAT exemption. You then no longer have any VAT obligations, such as calculating VAT on your invoices and keeping your VAT administration up to date. You can therefore no longer reclaim VAT on your business costs. The choice applies for three years or until your turnover (for which you are liable for VAT) exceeds € 20,000.