What is a provisional income tax assessment and why would you want one?
When you work for another business as an employee, your employer will withhold the tax due on your salary each month. If you are an entrepreneur or freelancer yourself, this obligation falls to you and the Dutch tax office will want to collect the money you will owe by the year-end, on a monthly basis.
This is done through a provisional assessment (or in Dutch, voorlopige aanslag) – and it is always in your interests to make sure that this is correct.
Entrepreneurs
For entrepreneurs, the Dutch tax office will send you an estimation and bill for the tax you should pay each month, based on your last year’s filing.
The fact that you need to make a monthly transfer can actually be helpful in managing cash flow and spreading the tax bill over the whole year. Therefore, it is important for freelancers to make sure the revenue is in line with the estimation. If the expectation of total year revenue will change throughout the year, it is wise to adjust the provisional assessment. This way you will stay in line with the calculated taxes based on the final figures at the end of the year.
Homeowners
If you own the house that you live in and are entitled to receive mortgage interest tax relief (hypotheekrenteaftrek), it might be in your interest to have the provisional assessment.
By declaring this on your assessment, any refund you are owed can be paid to you (or deducted from income) on a monthly basis, helping with your monthly mortgage bill.
Bear in mind that if at the end of the year, too much has been paid out to you, you will need to correct this through your annual tax return. One tip: there is no penalty and as long as you file your tax return before may the following year, no interest is charged on money owed either.
Changes
You should inform the tax office if there are any changes to your situation during the year that would affect your tax bill, for example, if your business is making a lower profit than usual.
If you file a provisional income tax assessment letting the Dutch tax office know, then it can adjust your monthly payments downwards to help with your cash flow. This applies both for sole traders and for B.V. limited companies.
If you move abroad during the year, this will mean that you may have overpaid on your tax. Unfortunately, for employees who migrated, it is not possible to ask for a refund upfront. To get the refund, you have to follow the regular program and file an M-form when the year has ended. Freelancers and small business owners can still adjust the provisional filing since the calculation of the taxes is based on their revenue.
So, it makes sense to stay alert, check any bill the Dutch tax office has sent to you, and be proactive in reporting any changes.
Blue Umbrella has a team of experienced experts in expats and charges €105 for standard provisional assessment filing. Contact us for advice at.