INCOME FROM A SMALL BUSINESS ABROAD

What is your tax position if you live in the Netherlands but have income from your small business registered abroad?

SOLE PROPRIETORSHIP OR FREELANCER ABROAD

It sometimes happens that Dutch resident entrepreneurs register a sole proprietorship or freelance business abroad, or have registered it there in the past. This is a difficult situation from a fiscal perspective. If a company consists of one person, and that person lives in the Netherlands, then a registration abroad seems incorrect. Registration elsewhere does not remove the tax liability in the Netherlands. A resident of the Netherlands is taxable in the Netherlands for his or her worldwide income. A sole proprietorship always follows the person, because it is not an independent entity (as a BV or LLC is, for example). It is mandatory to register a (practically) Dutch-based company with the Dutch Chamber of Commerce. This can also have consequences for VAT! Therefore, always make sure that this is properly arranged.

It is possible that a sole proprietorship has a ‘permanent establishment’ abroad: for example, a factory or an important employee. Part of the profit can be counted on this permanent establishment. This is usually regulated in the applicable tax treaty.

BV, LLC OR OTHER LEGAL ENTITY ABROAD

Much more common is the situation in which a resident of the Netherlands has shares in a company abroad. And we don’t mean Apple or Tesla, but a stake of 5% or more. This has certain tax consequences in the Netherlands.

First of all, this property must be declared to the Dutch tax authorities. If you hold the shares directly, you do this in your personal income tax return. If a Dutch company (for example your personal holding company) owns the shares, that company declares the property in the corporate tax return.

The property in itself is not taxable. Income from it is. This may include:

  1. Salary
  2. Directorship fees
  3. Dividends
  4. Capital gains

All this income, depending on the applicable tax treaty, is in principle taxable in the Netherlands. Always speak to a tax advisor before making such payments, preferably before setting up such a structure.

The company itself can also become taxable in the Netherlands. Either domestically (fully) taxable because the company is managed from the Netherlands; or foreign (partly) taxable because the company has a ‘permanent establishment’ in the Netherlands. You can prevent this as much as possible by creating ‘substance’ (actual presence) abroad, and having important functions within the company performed by people abroad.

CONCLUSION

Having a foreign company or foreign freelance business does not mean that you pay no or less tax in the Netherlands. Always be well-informed before setting up an international structure. Our specialist Joost de Leeuw (leeuw@duijntax.com) can always schedule a call or meeting.

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