Keywords: Guideline, Source of Income, Personal Income Tax

The taxpayer eligible for Dutch Personal Income Tax (“PIT”) might find his/herself struggling with when a result could be seen as a source of income for the PIT as an entrepreneur. For the average taxpayer this is difficult to determine. Assessment of whether there is a source of income is based solely on case law and that can be tricky, especially for the laymen. For the Dutch Tax Authorities this is a reason to publish a short guide on this subject with guidelines for assessing whether an activity is a source of income for the PIT or not[1].

Conditions for a source of income qualification

A result (positive or negative) can only be income if it is based on a particular source. Only in the case of sources with labour, the following three conditions must be met before there is a source of income:

1. participation in an economic activity;
   1. If the activity takes place outside the private sphere and for a fee.
2. the (subjective) intention to obtain a benefit;
   1. the assessment of the extent of the expected benefit takes place on a commercial basis. The entrepreneur assumes the regular business results with actual revenues and costs. In doing so, the entrepreneur does not take into account incidental influences or tax facilities.
      1. This is a common discussion point
3. The (objective) expectation that the benefit can reasonably be achieved.
   1. the entrepreneur must examine whether it can be foreseen that his/her activities will be permanently loss-making or - in the future - profitable.
   2. The question of whether there is an objective expectation of benefit in a particular year must - in principle - be answered by the entrepreneur on the basis of facts and circumstances from that year. In this assessment, however, he may also include facts and circumstances from other years if they can further substantiate the answer to the question.

Please note that each source of income has to be assessed individually.

The guideline itself is in Dutch, we understand that this is not ideal for our English-speaking clients.

Therefore, we are more than happy to assist you in this matter regarding any questions that may arise with a possible source if income for the PIT.

For more information, please send an email to: info@nazali.com