Update Law DBA (Deregulation law review labor relations)
The ‘Deregulation Law review Labor relations’ is effective as of May 1st 2016. This means that as of May 1st 2016 ‘Declaration of labor relations’ (VAR) has expired. However, the Dutch tax authorities did state that the new law will not be enforced until January 1, 2018 unless the prior law was already not applicable to the situation between the contract partners.
As a substitute for the VAR, clients and contractors (mostly self-employed - freelancers) can use a model agreement to have certainty in advance about the planned employment relationship. These model agreements can be found (Dutch only) on the website of the Dutch tax authorities ('de Belastingdienst').
Especially for clients it is important that there is no employer - employee relationship. If this is the case, the payroll tax and the premiums (employer and social security) can be recovered from the client by the Dutch tax authorities. Furthermore the entrepreneur could lose his entrepreneurial deductions for the income tax.
Please note that when using the model agreement, the contract parties should be acting in accordance with the agreement. In the model agreements there are yellow marked areas that should not be modified. However, if these areas are modified anyway, the agreement should be re-submitted to the Dutch tax authorities for approval.
It is not mandatory to use a model agreement of the Dutch tax authorities. Alternatively one can use other agreements. Even if there is no agreement, you can still qualify as an entrepreneur for Dutch income tax purposes.
What criteria are important in order to be qualified as an entrepreneur for Dutch income tax purposes:
- Could the entrepreneur be at risk (eg debtors risk, risk for income loss, liability risk, etc);
- How many clients does the entrepreneur have and is there a certain independence?
- To what extent is there use of own letterhead, an own bank account, an own phone number, a website, an own office, own equipment etc.?
- Does the entrepreneur advertise his business,
- How does the entrepreneur acquire clients?
- How much time is devoted to the company?
- Are there regular/sustainable activities in company or are the activities random and on/off?
- What is the size of the gross income?
- Is the company registered with the Chamber of Commerce?
- Is there entrepreneurship for VAT purposes? (The criteria are; are goods and/or services delivered, does one participate in the economy (not only for family and friends), and is there an organization of labor and capital).
- Can the entrepreneur be replaced by a third party for doing the contracted work or can he/she only be replaced with the permission of the client?
- Is there a financial administration?
- Is the entrepreneur liable when his/her work is not done properly (Does the entrepreneur have professional liability insurance)?
- If the entrepreneur paid during holidays and sickness?
What could cause problems qualifying for entrepreneurship for income tax purposes?
- The contractor works only for one or two clients (and not for other clients).
- The client provides tools, clothing etc.
- The contractor does not have a professional liability insurance.
- The client handles the complaints regarding the work of the entrepreneur.
- The contractor carries no risk, when the work is not up to the agreed upon standards.
- The contractor receives a Christmas gift from the client (like normal employees).
- The contractor can take part in educational courses at the expense of the client (just like normal employees).
These are just a few examples that may influence the qualification for entrepreneurship for income tax purposes. Please note that for the qualification the whole picture is taken into account, not all the details separately.
Acting according to the model agreements of the tax authority provides some kind of certainty. However, when the contract parties are not acting in accordance to the model agreements, the tax authority can easily prove this. If the model agreements of the tax authority are not used the burden of proof remains with the Dutch tax authorities to proof that, you are not an entrepreneur according to the income tax.
If you have questions or need advice on this subject, please do not hesitate to contact us anytime.