I’m writing this in English because the absurd complexity of Dutch tax law is probably more entertaining for foreigners than for locals who are used to it. There’s a chance that I’m going to work at a client’s office in the middle of nowhere for one month. I don’t have a car and public transport would take 3.5 hours per day, so I looked into renting a car. Here’s what I discovered so far; don’t try this at home without talking to your accountant.
The Car & Gasoline
There’s a car rental company a stone’s throw away from my home. I like small efficient cars and so they offered me a Kia Picanto or Fiat Panda for about €480 per month (including VAT) with 3,000 km allowance. For some reason Dutch people love manual transmission, so those are the cheapest. I need to drive about 2,400 km for work that month and I also want to do a few trips for personal reasons.
I expect to be spend about €300 on gasoline. This Dutch documentary explains where that money goes: 60% goes to the government. First there’s excise (accijns) and then there’s VAT (BTW). You actually pay VAT over excise. Yes, you read that right. Even though excise doesn’t Add any Value whatsoever, you still pay Value Added Tax over it.
The city of Utrecht wants to encourage car ownership. You see, you need to pay for parking, but you can get a cheap permit if you own a car so you can park it in front of your house. But you can’t do that if you’re just renting a car for a short time. The permit takes ages to get and is tied to a specific license plate. So you pay more for parking when you rent a car than when you own it. Now that’s an awesome environmental policy… The only good news is that I can get a small discount by using my “visitor” parking card. Fortunately the car rental company is very close and they don’t mind if I park it there when I’m not using it.
Value Added Tax (VAT / BTW)
Services are taxed at 21%, but a business can get that refunded. As a sole proprietor (ZZP’er) the same rules apply as for any company. My company can only get VAT refunded for the business use of my car, not for my private use: this is where things get both interesting and weird.
Let’s say the car plus gas costs €780 and that I drive 600 km for personal things. VAT is €136. I need to divide my business milage by the total milage to find the amount of VAT that I can get back: 2400 / 3000 * €136 = €109. Although I have all sorts of issues with this way of calculating personal benefit, it’s straight forward and not too much work to administer. The total distance is easy to calculate and I only need to keep track of personal trips.
Well actually, I also need to convince the tax office that these other kilometers were for business use, but they were pretty vague on how to do that. I’m assuming that I should be fine as long as my administration shows on which days I worked at that office and lists all personal trips. Did you know that the Dutch Tax Office uses highway camera’s to track the whereabouts of every car in the country and can use that information against you if your car showed up in a place that you didn’t record as a private ride? That’s probably why Dutch people are ignoring most of the NSA related news.
But I’m getting side-tracked here. In this scenario my business is renting the car and me as a private individual pays for some of that usage. But what if I turned it around? What if I rent the car as an individual and then my company “refunds” me for the business trips? That would be the same, right? Well, no. You still need to calculate the percentage of private kilometers, but that’s where the similarity ends. In this case you can only get a VAT refund for the gasonline costs (and any repairs you have to make). Apparently there’s some weird law that says you can’t get VAT refunded when you buy a car. That rule affects you when your business rents the car from you as an individual, but not when that same business rents it from a car rental company. It actually took two separate calls to the tax office to learn about this.
In other words: as far as VAT refunds are concerned it’s best to rent a car as business than to do it as an individual. The tax office employee even suggested that one could even use the car for business reasons 10% of the time, as long as your administration is correct. I need to look into my current Greenwheels (Zipcar) subscription as well in this context.
This is completely unrelated to VAT tax. I still find it hard to get my head (and spreadsheets) around that, but different rules apply to these taxes and you have to make sure you don’t confuse them.
First I need to decide if I’m going to drive more than 500 km per year for personal usage. If I drive less than that it’s cheaper but the burden of proof is completely on me (guilty unless proven innocent) and the Tax Office is known to be very hostile in this regard. “Forgot to register that little trip to the supermarket around the corner? Sorry, your evidence is now incomplete and here’s a few thousand euros in extra taxes for you.”. I’m using the car for one month, which means I would have to drive less than 42 km for personal reasons to get that benefit. So “bijtelling” it is.
Bijtelling litterly means “adding up”. What gets added up? Well, according to the tax office, the fact that you’re using this car for private use has been a huge benefit to your company. What? That’s right, your company is making more profit because you as an individual are enjoying this car. Fortunately you’re driving a
fiscally optimized environmentally friendly car, which the tax office considers less good for your business. Confused? Don’t worry, it’s really easy: take 14% of the “fiscal value” of the car (e.g. €11.000) and add it to your company’s profit. I’m only renting the car for one month so my company’s “profit” is increased by 1/12 * 14% * €11.000 = €128. Depending on how much profit my company ends up making, that translates to €40 – €70 in additional income tax that I need to pay over my extra “profit”.
This all probably makes more sense if you’re a salary slave working for a big company and they provide you with a car. In that case it’s considered part of the salary and so you pay more income taxes based on the value of that car. For a sole proprietor your salary is your profit, so the only way for the tax office to get your money in this case is to require you to add it to your company’s profit.
You thought this was weird? Let’s reverse the scenario like I did with VAT. Let’s say I rent the car as a private individual and then my company reimburses me. That would have the same result, right? Of course not: accountants would be out of a job if it were that simple. In this scenario I can only reimburse €0.19 per (business) kilometer. So €456 for my 2400 km is considered a business expense. The remaining €780 – €456 = €324 are considered private expenses. So even though 80% of my kilometers are business related, I can deduct much less than that.
So would I rather have bijtelling or less deducatable travel expenses? I’m lazy to calculate this, but the bijtelling option sounds means less paperwork and I’m guessing it’s cheaper as well.
It’s possible that under certain circumstances the nett effect of both VAT and income tax is the same in both scenario’s; Dutch taxes have a habit of cancelling eachother out in weird ways if you’re normal enough. High income taxes are compensated by mortgage deductions for example, which is not so nice for renters but rich people shouldn’t rent. The same might apply to cars: you’re supposed to own them or lease them for a full year; otherwise you’re not normal and that’s bad.
Anyway, the cheapest option with the lowest administrative burden for me appears to be what I had in mind form the beginning: my business should rent the car, do the bijtelling thing and then I just need to adjust my VAT refund for the private kilometers.
If I put this much unnecessary complexity in my software I would get fired. It keeps tens of thousands of tax office employees, accountants, bookkeepers, politicians, lawyers and others off the street. I would rather pay for their welfare benefits than sponsor those jobs, because in the end it’s consumers and tax payers who pay for this nonsense. On the other hand, I find it fascinating and highly entertaining to figure this sort of stuff out. And it gives them the dignity of a job that – because it’s so complex – given them the illusion that it’s more useful than digging holes and refilling them.
By the way: public transport cost less than half this and if I spend a few nights in hotels, I probably end up with more free time and sleep for the same after-tax price.
Perhaps I won’t get the assignment in which case all this research at least served to entertain you.