Entrepreneur / SME deductions for a side project

[beccah]

(my apologies for the post in English, mijn Nederlands is niet zo goed)

 

Context

• 2 of us (friends), run a platform (we registered it as a VOF) where freelancers can connect with potential buyers.
• It is in a niche, and can hence compete with fiverr, freelancer etc. 
• Both of us have fulltime jobs, and run this on the weekend. Since it is a platform, it requires low effort from us (couple of hours per week). 
• Last year it made a profit (<30k). I hope / target it will make a profit of 50k EUR in 2024, we will see.

 

Question 1:

We run this as a weekend project. It does not take us much time. I am unsure if I qualify for any of the Entrepreneur or SME deductions.

Would anyone have advice? Or know where I should inquire to get a more “official” recommendation?

 

I did try to ask the Belastingdienst 3 times, but was promised somebody would “call back”, this hasn’t happened yet so I thought I would ask in parallel in this forum.

 

Reason I ask: If I am not eligible for the deductions, I am considering registering it as a BV. That will have a lower effective tax rate (assuming I am not eligible for any deductions currently). I am hopeful DGA should ideally be quite low given small profit and low time-investment.

 

 

Question 2: Converting VOF to BV. I talked to 2 tax lawyers, and was informed that if I close the VOF and start a BV for the same business, I would need to pay “exit tax” on the VOF based on the market value of the VOF. 

 

The alternative, i.e. to convert a VOF to BV, seems to cost nearly 10k EUR. Which is a large dent on my profits, although thankfully once-off. This 10k EUR estimate does *not* include the creation of holding and werk BV, which is separate.

 

Is this advice accurate? I struggle with the concept of exit tax when I am actually not exiting the country.

 

Thank you in advance for any advice!

23 januari 2024 aangepast door beccah
Wanted to apologize for a post made in English in a forum where most posts are in Dutch!

[RubenT]

Welcome to Higherlevel, Beccah!

 

2 uur geleden, beccah zei:

I am unsure if I qualify for any of the Entrepreneur or SME deductions.

Would anyone have advice? Or know where I should inquire to get a more “official” recommendation?

Did you already found this page about the SME profit exemption (in English)? You're eligible for the SME profit exemption if the tax authorities consider you as an entrepreneur for income tax purposes.

 

For Entrepreneurs allowance such as the Private business ownership allowance, the income tax condition should be met aswell, and you also have to meet the time criterion, which is explained at the Entrepreneurs allowance page. 

 

 

2 uur geleden, beccah zei:

I would need to pay “exit tax” on the VOF based on the market value of the VOF. 

I assume you're referring to the discontinuation profit (stakingswinst). You can avoid that tax, read more about it on the page of the tax authorities about changing your company's legal structure.

 

 

2 uur geleden, beccah zei:

The alternative, i.e. to convert a VOF to BV, seems to cost nearly 10k EUR. Which is a large dent on my profits, although thankfully once-off. This 10k EUR estimate does *not* include the creation of holding and werk BV, which is separate.

Do you refer to the discontinuation profit with this 10k EUR? In that case you'll like my comment above. Otherwise: where did you find or hear this 10k EUR? I'm not an expert in this matter, but I can't image it will cost you 10k EUR for the advice to change your legal form, excluding the creation of the BV('s) itself.

 

 

2 uur geleden, beccah zei:

Converting VOF to BV

Are you aware of the fact that a BV brings more costs and some other rules  you have to apply to? An important one is the directors pay income tax (in a nutshell: you have to pay a DGA at least 56k EUR in salary). The consideration to convert a VOF to a BV should not be taken lightly, make sure you are informed well about topics like risk, fiscal and legal matters to be able to make a well-considered choice.

[beccah]

Thanks so much Ruben!

 

On possible tax exemptions, the primary criterion I will not fulfil is the "time criterion", since we don't hit 1225 hours per year of effort. My interpretation was that this would render me eligible for most tax exemptions. However, it does seem that I will still be eligible for the SME profit exemption, which is not a trivial sum. Thank you for pointing me to this link - I had seen it before, but entirely missed the fact that this does not require a time criterion.

 

On exit tax - indeed, this is what I referred to, thanks again for the link, I had been unable to find this myself. Re: your question on costs - I talked to 2 tax lawyers. Their quotes for the advice and execution, of converting the legal structure from VOF to BV (based on their estimated range of effort required) was "3.5k - 8k EUR" and "3.8k - 9.4k EUR" respectively. These are separate to their charges for establishing a BV structure. The large quote is indeed what made me want to investigate this further. Based on your reaction, it might be good for me to approach a few additional tax lawyers for a quote. Would you have any recommendations?

 

Regarding the decision to convert from VOF to BV, my understanding was that I can make an appeal for the DGA to be significantly reduced from 56k, providing 2 reasons:

- my time investment is likely to be between 5-10% of a full-time employee

- the total profit of the company is anticipated to be lower than a DGA salary

.. do you feel this 

 

The biggest benefits I saw in converting from VOF to BV were

(a) an overall reduction of income tax rate (with a VOF, every euro of profit is taxed at the highest bracket, since I also have a full-time job which pushes me into this bracket). This assumes however, a reduced DGA salary and my calculations also do not take the ~13.3% SME profit exemption

(b) separation of legal liability and limiting potential exposure (especially for circumstances I could not reasonably have foreseen) to the BV's operating funds.

(c) Easier re-investment: Since as a weekend project, I sometimes just don't have the time to work on this for weeks/months, delaying certain actions such as advertising campaigns, sometimes into the next year. I don't plan to withdraw dividends or take loans in the short- or mid- term; and was intending to ramp up this salary in a way that it doesn't jeopardize the actual running of the company.

 

The SME exemption (if I am eligible for it) could potentially change this calculation though. And of course, if the DGA salary reduction request is not accepted by the Tax Authorities, this would prove to be quite costly. I don't however think there is any way to make this request before the BV is established? I do have a revenue forecast for the next 12m and 24m (although ultimately just an estimate), so if there was a way to get some feedback from them before making the decision, that could be quite helpful.

[Joost Rietveld]

2 minuten geleden, beccah zei:

- my time investment is likely to be between 5-10% of a full-time employee

- the total profit of the company is anticipated to be lower than a DGA salary

.. do you feel this 

It all seems to hinge on these assumptions, and sadly they aren’t necessarily correct. There is no mention in the law of a part time factor with regards to the mandatory DGA-salary and there is also no provision allowing you to lower the salary based on your BV’s profits. Worst case scenario you’ll be looking at a DGA-salary equal to the BV’s profits. That will wipe out any tax benefits from having a BV.

 

If you are considering a BV with these KPI’s I can only advise you to get a ruling on your specific DGA-salary in this situation, before you invest in starting a BV. Your entire fiscal decision rides on this.

[beccah]

4 hours ago, Joost Rietveld said:

get a ruling

Thanks Joost! When you mention "get a ruling", are you referring to https://www.belastingdienst.nl/wps/wcm/connect/bldcontenten/standaard_functies/individuals/contact/your_rights_and_obligations/prior_consultation_ruling/ ?

 

Or is there a different process through which I can get this advice?

 

I actually tried to connect with the Belastingdienst several times via their phone hotline, and was told they can only support matters of personal income tax via the phone. They did promise to call back (and documented my questions), but I didn't hear back, therefore I started to look further online and discovered this forum :)

 

Thanks,

[Joost Rietveld]

That's the one, and yes, customer service from the Belastingdienst has some issues with keeping up with demand