DAFT and Taxes : The Dutch American Friendship Treaty in 2024

There are only two certainties in the life of an American entrepreneur moving to the Netherlands: DAFT and taxes. Elsewhere we offer in depth guidance on how to obtain the DAFT visa. In yet another article we explain the international tax situation between the Netherlands and the United States. In this particular instance we will dive deeper into the domestic Dutch tax and accounting situation after setting up your new Dutch business. We will touch on every single tax aspect in broad strokes, and refer to other deep diving articles if you would like to know more about a particular subject. DAFT requires you to set up a business in the Netherlands. There are 2 basic business types from which to choose : the BV (which allows for a 30% ruling) and the ZZP/eenmanszaak. Each business type has its own tax particularities. We will start with an explanation of VAT and invoicing requirements, which apply to all Dutch company forms. Then we will create a subdivision between the two company types and address the specific topics there.

NB: As of 2024, the Dutch immigration authorities (IND) have adopted a process of expedited DAFT applications. This means the DAFT final decision is issued about 4-6 weeks after its initial submission!

VAT
Value Added Tax, or VAT, applies to all business types in the Netherlands, unless you are able to obtain a small entrepreneurs exemption (“KOR”). The KOR only applies only if you have € 20,000 or less in revenue per year, so it’s only for the very small companies.

VAT is a consumer tax which is levied at the receiving party in all transactions, both in B2B and in B2C relationships. But VAT should only be paid by end consumers, not by business owners. This means that in any B2B relationship, VAT paid can be reclaimed from the Tax Authorities and VAT received must be repaid to the Tax Authorities. The only ones that cannot reclaim VAT are end consumers, so they end up being the net payer in the system. VAT is therefore not a business cost, but more of an administrative requirement for you as a business owner. You have to obtain a VAT number from the Tax Authorities and put it on your invoices. You need to stick to the VAT return filing periods. VAT returns are filed quarterly, and must be completed within one month after each quarter.

So when are you supposed to charge VAT to your clients, and how much VAT applies?

• Within the Netherlands: always 21%, both in B2B or in B2C relationships. Under exceptional circumstances you may be looking at a rate of 9% or 0% (protected consumer services such as healthcare). This almost never applies. For a full list see here (in Dutch).

• Outside the Netherlands, but within the EU: you charge 0% VAT in B2B relationships. Here you must make sure you check your EU B2B client’s VAT Identification number at the VIES. Your invoice to the EU B2B client should contain both your and your client’s VAT ID, and the mention that the VAT is “reverse charged”. Services and goods provided to natural persons in another EU country are subject to 21% VAT, to be repaid during your quarterly VAT returns. No further invoice requirements apply.

• Outside the EU: always 0%, regardless whether it is B2B or B2C. You don’t have to check VAT numbers. No further invoice requirements apply.

  
  

Invoicing and paychecks
Your new Dutch business can keep on servicing your American clients. You will just be invoicing them from a new company, and receiving payment for it on your new company’s bank account. Dutch invoicing has some basic requirements, most notably the requirement of having to feature a Dutch VAT number (see above). You don't have to worry about the exact requirements, as quality invoicing software exists that covers these requirements. Bear in mind that Dutch accounting does not recognize paychecks. If you are used to receiving paychecks for your work or your clients insist on it, you need to find a work around for this. Google for “lockbox services” and you may find a solution.

Specific to the ZZP/eenmanszaak company form

Tax requirements
The company form ZZP/eenmanszaak has certain requirements in order to obtain the tax breaks. You will want these tax breaks, otherwise the ZZP/eenmanszaak is as tax efficient as a regular BV. In short:
- spend at least 1224 hours per year in your EZ
- have 3 or more clients
- don’t have more than 70% revenues from one single client
- promote your business, for example using a website
- If you work intensively for one client, use correct freelance agreements. 
- Make sure your work does not resemble the work of regular employees in your client’s company

These rules are commonly misattributed to the DAFT visa. These rules are not DAFT requirements, but ZZP/eenmanszaak requirements. They usually apply because many DAFT visa applicants choose the ZZP company form. But if you choose a BV+30% ruling, these rules don’t apply.


Income from your ZZP/eenmanszaak
The ZZP/eenmanszaak is a see-through entity. This means it does not have a capital separate from the owner, so all profits are immediately subjected to income tax. Here the aforementioned income tax breaks apply, which can make for an attractive option if you earn under € 60,000 per year. In another article we explain more about the calculation of the ZZP/eenmanszaak income in comparison to the BV+30%.

Specific to the BV company form

30% ruling
If you expect to make at least € 66,000 per year or more, you should go for the 30% ruling. It has an enormous amount of benefits. The 30% ruling requires you to setup a BV, as it does not work with a ZZP/Eenmanszaak company form. Another article explains the entire process of DAFT, BV and 30% ruling for you.

Corporate Income Taxes
Corporate Income Taxes (or Profit taxes or "VPB" in Dutch) only apply if you have profits. If you pay out everything as salary (as is normal if you have a 30% ruling) there are no profits to be taxed. If you don’t have a 30% ruling (or it has expired) you start paying profit taxes once the company has profits left after you’ve paid out salary. The rates for profit taxes are as follows: 19% over profits up to € 200,000 and 25,8 % over all profits above that (2024). This means that profit taxes apply before dividends and dividend taxes.

Dividends
Dividends are less tax efficient than salary if you have a 30% ruling. You will therefore not use dividends unless your 30% ruling expires, or you didn’t have one to begin with. In the future, once the 30% ruling drops to 20% and 10% (if this happens), you should make a calculation of which of the two is most efficient. The dividend tax rate stands at 26,9% in 2024. But this applies after profit taxes (see above). For profits up to € 200,000, this means a net taxation of 45,9% on the profits, before they end up in your private purse.

DGA salary rules
If you consider paying out dividends, you must first consider the DGA salary rules. As a director in your own company, you are required to pay yourself a minimum salary. In 2024 this figure stands at € 56,000 This is called the DGA salary. But this is not a hard minimum. The main concern of the Tax Authorities is to prevent business owners from paying out dividends (which are taxed lower) instead of paying out salary (which is taxed higher). If this scenario doesn't apply, you have nothing to worry here. If you meet the 30% ruling requirements, you don’t have to worry about this one as the bar for the 30% ruling is set higher than for the DGA salary.

Holding Company structure.
The holding company has a number of benefits. The main benefits from a tax perspective:

• The ability to receive dividends and the sale price on shares tax free in your holding company, on account of the participation exemption.

• If you have post-salary profits exceeding € 200,000 per year, you can use the additional holding company for an additional € 200,000 of lower bracket corporate income tax rate. The holding company is therefore more suited to "advanced entrepreneurs". Switching from a normal BV to a BV+holding structure later is possible, but requires approval from the Tax Authorities. This is because the shares need to be transferred from yourself to the new holding company, which is normally a taxable transaction.
  
  

Payroll taxes
If you setup a BV and become its director, you will usually become its DGA. DGA means you are a director holding at least 5% or more of the shares in the company. This means you will be undergo a more lenient tax treatment than regular employees. If you calculate your salary as a director (through one of the DGA salary calculators that abound online) all taxes are included in that calculation. This includes income taxes and social premiums. This stands in contrast to the salary of a regular employee, which is subject to additional payroll taxes of 20-30%. These are normally paid by the employer on top of the salary. In the case of a shareholding director in their own BV, these payroll taxes do not apply.

Foreign work days tax exemption
If you have a 30% ruling, you can opt in for partial non-resident tax status. If you also have a US income tax filing obligation, this means that any days spent working outside Holland (for example business trips or workations) can be exempted from Dutch (box 1) income tax. 

Cost expensing
In the BV you are able to expense certain costs as business expenses (as opposed to having to pay them out of your private purse). This includes your relocation costs to the Netherlands and your children’s expat schooling costs.

Tax overview in a BV+30% setup
Corporate income taxes: not applicable
Dividend taxes: not applicable
VAT: neutral (paid = reclaimed, received = repaid)
Payroll taxes: included in gross salary, nothing on top

We hope this helps you on your way!