Tax concepts for entrepreneurs: A to Z

If you are an entrepreneur, you will have to deal with the tax authorities and many tax concepts through your business. This article includes a glossary of tax terms. For example, what is Substantial interest, Depreciation, General tax credit, Business assets, Box system or Conservative Assessment? These and more concepts about tax and tax authorities, listed alphabetically and clearly, in this article.

Tax concepts for entrepreneurs

An entrepreneur will have to deal with taxes and the Tax Authorities with his company, in whatever business form or legal form. There are so many different concepts that it can sometimes make you dizzy. In this article, tax concepts are listed alphabetically.

  • A concepts
  • B concepts
  • C concepts
  • E-concepts
  • F-concepts
  • G-concepts
  • H-concepts
  • I-concepts
  • J-concepts
  • K-concepts
  • L-concepts
  • M-concepts
  • O concepts
  • P concepts
  • R concepts
  • S-concepts
  • U-concepts
  • V-concepts
  • W concepts
  • Z concepts

A preliminary remark: the term ‘implementation institution’ appears a number of times in the glossary, a description of which follows for the sake of clarity. If you, as an entrepreneur, hire staff, you must join the administrative agency under which your company falls. The implementation agency that you deal with as an employer administers social insurance on behalf of the National Social Insurance Institute (Lisv). The implementation institutions are: Cadence, GAK Nederland BV, GUO Uitvoeringsinstituut BV, SFB Implementation Organization Social Insurance NV and USZO (which you fall under can be requested from the Chamber of Commerce in your region).

A concepts

Substantial interest

A significant interest exists if, among other things, a taxpayer (possibly together with the partner) directly or indirectly meets one of the following conditions:

  • has an interest in a company of at least 5% of the issued share capital, in the form of shares or purchase options on shares
  • has profit-sharing certificates that relate to at least 5% of the annual profit or to at least 5% of what is paid out upon liquidation
  • is entitled to at least 5% of the votes in the general meeting of a cooperative

See further The Company.

Excise goods

Goods for which excise duty is charged at the time they are produced, imported or transferred to the Netherlands from another EU country: beer, wine, intermediate products and other alcoholic products, tobacco products and mineral oils.

Write off

Distribute the purchase costs of an asset over the years in which the asset is used (e.g. a computer). In this way, these costs are charged to the profit in those years. See also asset.

General Tax Credit

Part of the standard tax credit. In principle, every taxpayer is entitled to this discount. This concerns an amount that is deducted from the combined income tax (further information can be found in Taxes & Types of Tax).

Labor discount

Part of the standard tax credit. A discount for the taxpayer who enjoys profits from business, wages or results from an activity with current work. The amount of the employment tax credit is a percentage of the employment tax credit basis.

B concepts

Basic space

The amount that can be deducted in annuity premiums in box 1 (tax return form, see also under Box system) for certain annuity insurance policies, without there necessarily being a pension deficit. The unused basic space cannot be transferred to the spouse or partner.

Company visit

Visit by the Tax Authorities (or the administrative agency) to collect information and gain insight into your business operations and administration. This is not an investigation into a specific report. You almost always get an announcement. The Tax Authorities employee (or the administrative agency) draws up a report of the visit. Part of a company visit can be the so-called on-site observation. This involves gaining insight into the daily affairs of the company.

Asset

Item (object) that you use in your business and that you have not purchased to sell. Most assets must be depreciated (unless the asset cost less than €454). For example, a machine, a building, a permit and the like (see depreciation).

Taxable result from other activities

The combined amount of the result of one or more activities that do not produce taxable profit or taxable wages.

Tax on Declaration

Tax for which you must calculate the amount to be paid yourself. You state this amount on a tax return and then pay the tax on your own initiative.

Tax on Assessment

Tax for which you receive an assessment stating the amount to be paid. The tax assessment is generally based on a tax return you have filed. You only have to pay the tax after receiving the tax assessment.

Notice of appeal

Written and reasoned request to the judge to revoke a decision on an objection (from the Tax Authorities or the implementation agency) with which the person submitting the appeal does not agree.

Objection

Written and substantiated request to the Tax Authorities or the implementation agency to revoke a decision with which the person submitting the notice of objection does not agree. This concerns a decision that the Tax Authorities or the implementation institution have taken themselves.

Book research

Inspection visit by the Tax Authorities and/or the implementation agency to check whether your returns are correct based on the accounting. The research concerns a specific period or certain parts of the accounting.

Box system

Taxation system with a number of income boxes, where each box has its own tax regime and its own rate structure. The IB Act has 3 boxes:

  • Box 1 – income from work and home
  • Box 2 – income from a substantial interest (see above under A)
  • Box 3 – taxable income from savings and investments

VAT

VAT stands for Value Added Tax and is the sales tax that you have to pay. In 2009 (not in 2008) the VAT rate will be increased from 19% to 20%.

C concepts

Catalog value Auto

The new price of a car in the year of manufacture, including VAT and BPM and without deduction of any discounts granted (see also private benefit from company car).

Protective assessment

An assessment for which the tax debt is determined, but is usually not collected. The income tax due on income to be preserved is calculated separately and included in a protective assessment. In the event of a course of events not desired by the legislator, for example the commutation of pensions after emigration, the protective assessment will still be collected.

E-concepts

Equalization reserve

A reservation of the profit for the even distribution of costs and expenses (see further under Fiscal Reserves).

Energy investment deduction

A deduction from the profit for certain energy-efficient investments that have not yet been used. The deduction is granted to entrepreneurs on the condition that they have a declaration from the Minister of Economic Affairs that energy investments have been made.

Single Document

Declaration form for import and export prescribed by the European Commission.

F-concepts

Invoice

Invoice for goods or services supplied, which at least states: name and address of the supplier and the customer, date and serial number of the invoice, date and description of the services, goods or products supplied, price excluding VAT and VAT amount. The invoice must also contain the VAT number.

Invoicing system

System for charging VAT to customers who are entrepreneurs. An invoice must always be issued, where the invoice amount is increased with VAT and the VAT is stated on the invoice. With the invoice system, the date of issue of the invoice is the moment at which VAT becomes due (see also cash system).

Fiscal Reserves

Tax reserves on profits:

  • The Equalization Reserve is intended for the costs that must be incurred every few years for periodic maintenance of assets (e.g. business premises), which are often high costs. This reserve can also be created for future expenses, such as environmental pollution. This reserve may not be formed for annual recurring expenses or for the purchase of company assets
  • The old age reserve is a certain amount that you can set aside to save for your old age provision. You do not have to pay tax on this amount for the time being; you will receive a deferral of payment for this
  • The Reinvestment Reserve; see H below

(Note: the old age reserve alone does not provide you with an old age provision; this can be done, for example, by taking out an annuity insurance policy.) Another tax scheme is the entrepreneur’s deduction, which is an amount that you can deduct from your profit.

G-concepts

Mixed Costs

Costs that are incurred for your company and that simultaneously provide you with private benefits.

Silent Conversion into BV or NV

The situation in which a company is converted for income tax purposes into a company run by a public limited company (NV) or private company (BV) with limited liability, where the remaining income tax claim:

  • is postponed to the future
  • is converted into a corporate income tax claim (see under associated persons) and a substantial interest claim (see under A Substantial interest)

More information about the company can be found in Company (BV and NV).

Silent Return from a BV or NV

The situation in which the objective business of a BV or NV is continued on behalf of the shareholders in the legal form of a sole proprietorship (Sole proprietorship) or partnership (The Partnership, Company (VOF). Here the existing corporate tax claim is transferred to the silent and tax reserves to the profit regime of box 1. At the request of the individual shareholder, the following tax claims can also be transferred:

  • the substantiality claim (see terms A Substantial) on his/her shares and profit-sharing certificates
  • an IB claim on assets made available by him/her to the BV or NV

There are conditions attached to the silent return.

H-concepts

Tax credit

Tax credit is an amount that is deducted from the combined income tax.

Reinvestment reserve

Book profits received on the disposal of a business asset can, under certain conditions, remain outside the annual profit and be included in a reserve. It is necessary that there is and continues to be an intention to reinvest. The reserve must be written off upon reinvestment.

Rental value

The amount that a home or business premises can yield when rented. Or put differently: the enjoyment that the owner of a property has, expressed in money. In many cases the amount of the rental value is determined by law. It is derived from the so-called WOZ value that the municipality has determined for the home or business premises.

I-concepts

Hirer’s liability

If an entrepreneur hires temporary workers or staff from another company, he or she can be held liable for the payment of payroll tax, employee insurance premiums and VAT. This is possible if the employment agency or the lending company does not pay payroll tax, employee insurance premiums or VAT.

Intra-Community Delivery

Delivery of goods by a supplier in one EU country to a customer located in another EU country.

Intra-Community Acquisition

Purchase of goods by a buyer in an EU country from a supplier established in another EU country.

To invest

Purchase assets for a company (see also under Concepts B Asset).

Investment deduction

A deduction from profit for the investment in business assets. Investment deduction can take the form of:

  • small scale deduction
  • energy investment deduction
  • environmental investment deduction

(see further under the relevant initials)

Collection measures

Measures that the tax authorities take to collect a tax debt if that debt is not paid or not paid on time (see also Default & Claim).

J-concepts

Annual space

The maximum amount that may be deducted in a given year for annuity premiums paid in the situation where there is a pension deficit.

Annual accounts

Financial annual overview of a company, consisting of the balance sheet and the profit and loss account and the explanatory notes thereto.

K-concepts

Cash system

System for determining the VAT liability to the tax authorities. With the cash system, the date on which the amounts are received from the customer is the moment at which VAT becomes due. The cash system is used if the customers are mainly private individuals: an invoice is not mandatory, amounts received for products or services supplied include VAT, the VAT amount is calculated by reducing the cash receipts with the correct VAT percentage (see also Invoicing system under F ).

Chain liability

Liability for tax and premium debts of someone who occupies a lower position in a series (chain) of persons than the person who is held liable. Chain liability occurs when work is contracted. An example of a chain is: client – contractor – subcontractor.

Small business scheme KOR

A VAT scheme for entrepreneurs who, without applying the scheme, do not have to pay more than EUR 1,884 in VAT in a year: the VAT to be paid is reduced or no VAT has to be paid at all. The KOR and amount of VAT payment is discussed in detail in VAT and KOR (Small Entrepreneurs Scheme).

Small-scale investment deduction

A deduction from profits for investments in business assets. The deduction depends, among other things, on the investment amount in a calendar year.

L-concepts

Labour costs

The total costs of paying wages to an employee: at least the gross wage plus the employer’s share of the employee insurance premiums plus the transfer allowance.

M-concepts

Margin scheme

VAT scheme for traders in used goods, art, antiques and collectors’ items: VAT is not calculated on the total turnover, but on the difference between the sales price and the purchase price.

Co-titleholder

The taxpayer who – other than as an entrepreneur or shareholder – is entitled to the assets of a company and who enjoys profits from it (see also Entrepreneur & Fiscal Facilities).

Cooperation deduction

A deduction from the taxable profit for the entrepreneur who meets the hours criterion and whose partner works without any compensation in a company from which the taxpayer enjoys profits as an entrepreneur.

O concepts

Sales tax

Turnover tax is the official name for VAT (Value Added Tax). The abbreviation VAT indicates the system of taxation; levying value added tax. There is a low and a high rate, 6% and 19% VAT respectively. In 2009 the VAT rate will be increased from 19% to 20%. The increase in the VAT rate to 20% will therefore only take place in 2009 and not in 2008, as is believed by many (there was indeed also some uncertainty about this).

Entrepreneur

The taxpayer on whose behalf a business is conducted and who is directly liable for obligations relating to that business. The practitioner of a self-employed profession is also regarded as an entrepreneur.

Entrepreneur’s deduction

The combined amount of:

  • self-employed deduction
  • deduction for research and development work
  • co-working deduction (see under M)
  • strike deduction

Entrepreneurial facilities

Tax schemes that are exclusively intended for entrepreneurs, such as:

  • entrepreneur deduction
  • old age reserve
  • energy and environmental investment deduction
  • training deduction (see under S)

Enterprise (objective)

A sustainable organization of labor and capital that aims to achieve profit through participation in economic activity, while this profit can also reasonably be expected. An enterprise also includes: the independently practiced profession.

Enterprise (objective)

The part of an objective company that is borne by a taxpayer. For example, a partner’s shareholding in a partnership (see Partnership partnership) and his non-corporate business assets together form the assets of his subjective business.

Enterprise facilities

Tax schemes that are not only intended for entrepreneurs, but also apply to other taxpayers who enjoy profits from business. Examples of this are the small-scale investment deduction and arbitrary depreciation. An overview of all facilities for entrepreneurs who meet the hours criterion can be found in Entrepreneur & Fiscal Facilities (hours criterion).

Entrepreneurial capacity

The components of an entrepreneur’s assets who use them for the business and which appear on the company’s balance sheet. Assets that are used for both business and private purposes can also be part of the business assets (for example, a building that the entrepreneur largely uses for the business and in which he also lives).

Old age reserve

One of the Fiscal Reserves:

  • to which the entrepreneur can annually add profit-dependent amounts at the expense of his profit
  • which is intended for building up old age provisions

The old age reserve is stated on the balance sheet and is included in the profit calculation.

P concepts

Investment companies

Companies that provide money to entrepreneurs. These companies are particularly important for starting entrepreneurs in the context of investing in venture capital (formerly the Tante-Agaath scheme).

Partner (Tax)

  • The spouse who is not permanently separated
  • The registered partner who is not permanently separated
  • The two unmarried adults who choose to be considered a partner and meet certain conditions.

These conditions are:

  • they run a joint household for more than six months continuously in a calendar year
  • they are registered at the same address in the personal data records during that period

If a parent and a child live together, both must be 27 years or older.

Pension deficit

The situation in which the accrued pension rights are not considered sufficient by the legislator for an adequate old age provision. The Income Tax Act 2001 describes which amounts can be deducted as annuity premiums in connection with a pension deficit. The permitted annuities to compensate for the pension deficit have been exhaustively listed by the legislator.

Private use car

Under this scheme, an amount is added to an employee’s income if he also receives a car from his employer for private use. The scheme also applies to entrepreneurs who use a car from their company. The amount of the additional tax varies depending on the amount of private use and is at least 0 to 25% of the value of the car. If the actual value of the private use is higher than the additional tax calculated on the basis of the statutory percentage, then the higher value applies.

Private Costs

Costs that only provide private benefit to an entrepreneur, even if they are incurred for the purpose of the business.

Private Assets

The components of an entrepreneur’s assets that are used exclusively or mainly privately and that are not included on the company’s balance sheet. Assets that are used for both business and private purposes can also be part of private assets (for example, a building in which the entrepreneur lives and of which he uses a small part for the business).

Private benefit from Company Car

The advantage (expressed in money) that an entrepreneur has because he also uses a company car for private trips. The private benefit must be offset against the company’s car costs. For a passenger car it is often a fixed percentage of the catalog value (see catalog value of the car).

R concepts

Legal entity

The legal capacity of a non-natural person. Legally, a distinction is made between natural persons and non-natural persons or legal entities. Here a person is a bearer of rights and obligations. To make it clear that others than natural persons can also have rights and obligations, the law has created a legal entity. Examples of legal entities are BVs and NVs (see BV and NV), Associations (association) and Foundations (foundation). But also the State, provinces, municipalities and churches. More information can be found in Legal entities.

Legal form

Legal form in which a business is run: sole proprietorship, partnership of two or more people, such as a partnership, or legal entity (for example a BV). More information can be found in Legal forms.

Reservation area

The unused part of the annual spaces for annuity premium deduction from the past seven years.

Result from an activity

The amount of the joint benefits that – under whatever name or form – are achieved with one or more activities that do not produce taxable profit or taxable wages.

Trip registration

A registration in which all journeys with a specific car – both business and private – are recorded. This registration must meet certain conditions.

S-concepts

Partnership

A fiscally transparent legal form in which a business is run on behalf of several people. Examples of a partnership are:

  • Partnership Under Firm (partnership VOF)
  • Commanditaire Vennootschap (commanditaire Vennootschap)
  • Partnership (partnership)

Education deduction

A deduction from the profit for the costs and charges of training of persons working in the company. An overview can be found in Entrepreneur & Fiscal Facilities (hours criterion).

Strike

Ceasing to enjoy profits from a business in the Netherlands, for example due to death, emigration or sale of the business.

Strike deduction

A deduction that is part of the entrepreneur’s deduction (see O), which an entrepreneur may deduct from his taxable profit in the event of the discontinuation of an entire business. The discontinuation deduction only applies once (in the entrepreneur’s lifetime).

Strike win

The profit that an entrepreneur achieves upon termination of the business or conversion of the business into another legal form. Discontinuation profit is the difference between the economic value of the company and the book value of the company (overview in Entrepreneur & Fiscal Facilities (hours criterion).

U-concepts

Hour criterion

An hour limit for the time that the entrepreneur spends on running a business for his own account and that is important for the:

  • Old age reserve
  • Self-employed deduction
  • Development and research deduction
  • Cooperation deduction

See also under Associated person. An entrepreneur must spend at least 1,225 hours per year on actually running the business to be considered a self-employed person for tax purposes and to be eligible for certain business facilities. An overview of all facilities for entrepreneurs who meet the hours criterion can be found in Entrepreneur & Fiscal Facilities (hours criterion).

V-concepts

Associated person (result of other activities)

The partner of the taxpayer or the person:

  • with whom he has concluded a cohabitation agreement
  • who is registered as a partner with a pension scheme
  • who is partly liable for the mortgage debt for their own home
  • with whom he or she runs a long-term shared household, provided that the conditions of the partner arrangement are met

Related persons also include: the taxpayer’s minor children, his/her partner (or one of the persons mentioned above).

Associated person (hours criterion)

In this context, persons associated with the taxpayer are defined as: persons belonging to the taxpayer’s household and relatives by blood or marriage in the direct line (direct line), or persons belonging to their household.

Reverse charge arrangement

VAT scheme whereby the buyer, rather than the supplier, must calculate and declare VAT. Reverse charge arrangements are applied to the purchase of immovable property, where taxable delivery is chosen, to subcontracting in the construction and clothing and metal industries, and to international trade.

Loss account

Settlement of negative income from boxes 1 and 2 (see box system) with positive incomes from other years in those respective boxes.

Calculate input tax

Offsetting the VAT that an entrepreneur has paid to other entrepreneurs (the input tax) with the VAT that he has received from customers. The entrepreneur must pay the difference to the tax authorities.

Advance bill

Estimated provisional bill from the administrative agency (administration agency), to an employer for employee insurance premiums. The employer makes advance payments: the premiums must be paid in advance in instalments.

W concepts

Value in Economic Traffic

The probable price that would be paid upon sale by the highest bidder buyer if the sale were to take place in the usual manner and under normal circumstances for the asset, and if it had been prepared in the usual manner.

Gain

Profit is revenue minus costs: the positive or negative financial result of a company. Business losses are negative profits.

Income from business

The combined amount of the profit that the taxpayer as an entrepreneur enjoys for income tax purposes from one or more companies. Profit from business is partly:

  • the profit that the taxpayer, other than as an entrepreneur or shareholder, as co-owner of the assets of a company, enjoys from one or more companies
  • the amount of the joint benefits that the taxpayer enjoys from a debt claim on an entrepreneur for the benefit of a business operated on his behalf that meets certain conditions

Z concepts

Business costs

Amounts that an entrepreneur spends on matters other than business assets, to start and keep a business running. Business costs reduce profits.

Self-employed deduction

A deduction for entrepreneurs who meet the hours criterion and are not yet 65 years old on January 1 of the calendar year. There are a number of conditions attached (see, for example, the hour criterion 1225 hours per year), and the amount of the deduction depends on the profit from business. The higher the profit, the lower the self-employed person’s deduction. An overview of all tax facilities for entrepreneurs who meet the hours criterion can be found in Entrepreneur & Fiscal Facilities (hours criterion). More information can be found on the tax authorities’ website www.belastingdienst.

read more

  • Taxes & Types of Tax