Tax in the Netherlands part 3

This article continues the series on income tax in the Netherlands.

In the previous article we discussed the filing of the income tax return, self-employed professionals and buying a house in the Netherlands. In this article we will elaborate on the following subjects:

• Consequences for late filing or failure to file income tax returns;
• Transition from employment to self-employment;
• Tips and tricks for the income tax return 2011.

Consequences for late filing or failure to file income tax returns
The Dutch income tax return 2011 must be filed with the Dutch tax authorities before  April 1st  of  2012.

If you submit your tax return too late (or not at all) you may receive a substantial fine, the default penalty.
Since January 1st,  2009, the fining policy of the Dutch tax authorities has been severely tightened and the penalty increased. The frequency of breaches also affects the severity of the penalty.

– For the first (single) late submission of the income tax return, the default penalty amounts to € 226;
– For the second late submission of the income tax return the default penalty amounts to € 984, and
– By systematic late submission of income tax returns the default penalty amounts to € 4.920.

If the deadline for filing the income tax return has lapsed and you have failed to comply, the Dutch tax authorities will send you a reminder. In this reminder you receive a window of ten working days in which to submit the return.
If you again fail to comply within the timeframe the fine will start to accumulate within seven days.

The Dutch tax authorities also impose default penalties for making false declarations and for not applying  the necessary correction. In both cases the fine is € 1200.

If you have completed the tax return on time but are late with payment you may be fined for payment default. Again, the frequency of failure and the amount in question determines the leniency – or lack thereof – from the tax authorities and the ultimate penalty amount:

– If it the first infringement, you will receive a default notice and no penalty.
– If you pay within the courtesy period and you had received a default notice in the previous tax period, you will receive a payment default penalty of at least 2% of the amount which was paid late. This has a minimum of € 50 and a maximum of € 4.920.
– If you make a partial or full payment outside the transitional periods, then a fine will be imposed regardless.

Employment or self-employment
Moving from employment to self-employment is a step with serious consequences. The transition from financial security to self-sufficiency and a level of uncertainty is a risky undertaking, and the relative tradeoffs should be considered thoroughly before jumping in the deep end.

If you aspire to become the director of a multinational firm, then becoming an entrepreneur will not be the most obvious move unless you have the drive and ambition to build up the company personally.

Self-employment has advantages and disadvantages.
The main advantages are:
– You are your own boss;
– You can work wherever and whenever you want, and you make the decisions;
– You are working for your own profit doing something you like and which you are good at; and
– You have a broad orientation. You have to be a jack-of all-trades which keeps the job interesting.

The disadvantages of self-employment:
– You have to do everything, or at least oversee everything. From purchases to invoicing, from administration to tax. If you are a specialist by nature, this can be an annoying distraction for you
– Long hours almost without exception
– The longer you are self-employed, the harder it becomes to ever again work for a boss once you have tasted the freedom of working for yourself.

The transition from an employee to an entrepreneur is an exciting change. It can be stressful, but is a learning experience even if you decide to return to employment in the future. The cash flow situation is important to bridge the startup period, so account for this to take at least six months and make sure your financial situation is healthy at the outset. Maybe you could work part time while starting your business? Or perhaps your current employer has an assignment for you?

Tips and Tricks 2011 tax return
This year the Dutch tax authorities are intent on seeing that the 2011 tax return is filed on time. If you know that you cannot file your tax return on time you can request an extension for filing.

The monthly payroll administration does not generally take the various tax deductions into account. Also if you have multiple jobs in one year your annual income may be higher than your employer (s) know. There may have also may been various factors during the year which can affect your financial picture. You may have paid too much tax, but it can also be that you have paid insufficient tax. Doing your income tax return is the time when you get to see the bigger picture of your financial situation.

There are several ways to recover overpaid tax. There are other deductions which may be applied which reduce the amount of tax due for the year. In this category are such things as mortgage interest or certain medical expenses.

In particular young people or students, and also foreign workers generally pay more tax than they are required to. This is because they have only worked for a few months, while the tax rate is calculated on the assumption that they have worked the whole year.