New, Heavier Tax Burdens for Freelancers in the Netherlands

Many may be surprised to know that freelancers unlike most traditional workers in The Netherlands are required to pay taxes on their income before it is actually received. As if this long-standing regulation is not binding enough, the government has now placed additional constraints on freelancers that may generate billions in tax revenue per year.
Income tax for freelancers in The Netherlands, it seems, is an unsettling balance between efficient planning and pure chance. While most employees are taxed via the pay-as-you-earn (PAYE) income withholding, freelancers however, are taxed via voorlopige aanslag (provisional assessment) and pay income tax on earnings in-advance of them ever being received.

Each year, the belastingdienst (Dutch tax administration) calculates the expected net income of each freelancer through the voorlopige aanslag and requires payment of income tax in equal monthly installments for that year. If freelancers’ actual income is less or more than the pre-determined amount, they are either compensated what they overpaid or charged interest on the income that’s above the calculated amount.

To make matters worse, in 2014 the government added a clause to the Algemene Wet Inzake Rijksbelastingen (General Tax Act) which allows hefty fines to be levied when actual net earnings are inconsistent with those forecasted. The measure is said to discourage freelancers who deliberately overestimate their earnings. However, it also stands to bear a harsh penalty on those without consistent income.

The new regulation currently has no stated parameters of applicability, therefore the decision to impose a fine rests solely with the individual tax inspector – leaving freelancers little room for safeguard. With work for most freelancers either unpredictable or seasonal, one can imagine the potential financial burden these constraints could unload on those without work or a steady client base.

Those affected by the regulation are not too happy with the added pressure. Dutch freelance writer Myriam Young, states: "This clause is effectively a license for the government to dip into freelancers’ pockets whenever they fancy pulling in some extra cash.” She also reports that the Dutch government recently brought forward income tax paymentsfor 500,000 freelancers in December 2014 – effectively indebting them with two income tax bills for the year. Driving the nail even deeper, a recent attempt to remove the zelfstandigenaftrek, which would have cost each freelancer around a crippling €3,000 a year, was recently thwarted.

If freelancers are able to meet this new obligation, it stands to cede billions of euros to the Dutch government in 2015, bypassing the hungry market economy. These regulations will also impact local and international businesses in the Netherlands, who would ultimately have less spending power as a result of these increased revenues from freelancers.
Freelancers and entrepreneurs are indeed a vital part of the Dutch economy, offering diversity and excellence in products and services across the country.

By Jerry L. Grimes, Jr.