Entrepreneurs can make use of the entrepreneur’s tax relief schemes for income tax purposes. However, they must meet the hours criterion.
Hour Criterium
This criterion means that at least 1,225 hours must be spent on the business in a calendar year. The burden of proof that these hours were actually worked for the business lies with the business owner. This proof can be substantiated by means of a timesheet. The tax authorities check such time records against opening hours, appointments and similar details.
Entrepreneurs who, in addition to their business, receive income from employment must devote the majority of their time (i.e. 50% or more) to their business.
For entrepreneurs starting a business whilst on sick leave, a reduced hour criterion of 800 hours applies. Different amounts apply to the self-employed tax allowance for these start-ups.
Female entrepreneurs who have taken time off due to pregnancy may still count the hours not worked as hours worked, over a total period of 16 weeks.
Coronavirus: restrictive measures
As a result of the coronavirus pandemic, many business owners are failing to meet the hours criterion. The government does not consider it appropriate for these business owners to pay more tax as a result. It has therefore been agreed that, for the period from 1 March to 1 October 2020, entrepreneurs will be deemed to have spent at least 24 hours per week on their business (16 hours for start-up entrepreneurs who are unable to work).
Business owners who, due to seasonal activities, experience a peak in the number of hours they devote to their business between 1 March and 1 October may assume that this number of hours is the same as that devoted to their business during the same period in 2019. They must provide evidence of this using their 2019 (time) records.
These approvals do not apply to the fourth quarter of 2020. State Secretary Vijlbrief of Finance confirms this in his recent answers on parliamentary questions.
For 2021, the relaxation of the hours criterion applies during the period from 1 January to 30 June inclusive.
Business facilities
The hours criterion is not relevant to the SME profit exemption. This exemption amounts to 14% of the profit and may be claimed by all business owners. The SME profit exemption does not apply to those receiving income from other activities (row).
Entrepreneurs who wish to claim the self-employed person’s allowance (including the start-up allowance) or the assisting partner’s allowance, or who wish to make contributions to the retirement reserve, must meet the hours criterion.
The self-employed person’s allowance is a deduction from profit. With effect from 2020, the self-employed person’s allowance will be phased out by €360 per year. The amount of the allowance will therefore be as follows in 2020: € 7.030. For 2021, the allowance has been further reduced to € 6.670.
The first-time buyer’s allowance amounts to in both years € 2.123.
The allocation to the retirement reserve in 2020 and 2021 amounts to 9.44% of the profit, with a maximum allocation of €9,218 in 2020 and €9,395 in 2021. The accumulated retirement reserve will be subject to tax in the future. For example, the reserve will be released upon the cessation of business activities.
Every year, business owners are free to choose whether or not to make contributions to the retirement reserve.