Many self-employed professionals and director-major shareholders assume that a Chamber of Commerce registration and a VAT number are enough to qualify as an entrepreneur for income tax purposes. But that assumption is incorrect. A recent ruling by the The Hague Court of Appeal shows once again that the Dutch Tax Administration uses a strict test to determine whether someone truly operates a business for income tax purposes (IB).
And that test determines whether you are entitled to essential tax benefits, such as the self-employed deduction.
The Case: Management Fee Is Not Business Profit
In this case, a man held,together with two partners,all shares in a holding company with two subsidiaries. Each year, he invoiced a €48,000 management fee to the holding company and declared this income as business profit.
After a tax audit, the inspector concluded this was incorrect. Out of leniency, the income was classified as miscellaneous income (ROW) rather than business profit.
The Court confirmed that assessment.
Why the Court Rejected IB Entrepreneurship
The Court ruled that the man did not meet the requirements of Article 3.2 of the Income Tax Act 2001, which include:
having a sustainable organisation of capital and labour,
independent participation in economic traffic,
bearing entrepreneurial risk.
A KvK registration, a VAT number, and a limited administrative setup were far from sufficient.
Result: no business, no self-employed deduction, no other IB entrepreneurial facilities.
No Successful Appeal to Trust or Equality
The taxpayer argued that earlier tax audits had given him reason to rely on the assumption of entrepreneurship. The Court disagreed:
the audit report explicitly mentioned that corrections would follow;
he could not provide evidence of any promises by the Groningen Tax Office;
he could not demonstrate that similar cases were treated more favourably.
Both the principle of legitimate expectation and the principle of equality were dismissed.
What This Means for DGA’s and Freelancers
The ruling highlights a crucial distinction:
VAT entrepreneur ≠ Income tax entrepreneur
For DGA’s who invoice management fees to their own companies, this point is especially important. Without a demonstrable real business structure and entrepreneurial risk, the Tax Administration will quickly classify income as miscellaneous income,without tax benefits.
Conclusion
A VAT number and a Chamber of Commerce registration do not automatically qualify someone as an entrepreneur for income tax purposes. Anyone claiming entrepreneurial deductions must meet the strict legal requirements. The Hague Court confirms that the tax authorities are right to assess this critically.
