Bookkeeping and VAT for Cultural Entrepreneurs

As a cultural entrepreneur, knowledge of administration and tax law isn’t always second nature. And that’s not surprising! Most artists and cultural practitioners are focused on the creative aspects of their work, not on their tax obligations. Still, it’s worth taking the time to delve into the dry realities of running a business. Don’t be intimidated—you, too, can get a handle on this.

This article was written by Zita Smit, a spoken-word performer, poet, musician, and visual artist.

The Beginning

You have a great idea and a passion for your field. You’ve taken the plunge and registered your business with the Chamber of Commerce. Once you have a Chamber of Commerce number, you’re ready to get started, and during the registration process, you’ll immediately be asked if you want to use a VAT number. In fact, every business owner in the Netherlands is required to file a VAT return, although (of course) there are exceptions to this rule.

Every business has its own unique situation. The basic principles below apply to everyone, but each business applies its own logic to the laws and regulations. As a business owner, you are required to be aware of your applicable rights and obligations. So make sure to educate yourself. Use the websites of the Tax and Customs Administration and the Chamber of Commerce, and, above all, talk to other business owners in similar situations.

KOR – Small Business Scheme

The Small Business Scheme (KOR) is intended for business owners who operate on a small scale and are therefore not subject to VAT. When you register for the KOR, you do not charge VAT on your revenue and you cannot claim a VAT refund on your expenses.

The KOR can be a great solution if you’re just starting your business. This is because you don’t have to file a VAT return every quarter, you don’t send out invoices (if you do, you must state on your invoice that you’re registered under the KOR), and you only need to keep records of your expenses and your business bank account. If you’re registered under the KOR, you must file an annual income tax return for your business.

Be sure to keep a close eye on your revenue to ensure it does not exceed the 20,000-euro threshold during the year. If your revenue exceeds this amount, you will have to manually deregister from the KOR scheme. From that point on, you’ll be subject to VAT and will have to charge and remit VAT. It’s a misconception that the KOR reduces administrative obligations; in fact, the accountability and burden of proof remain largely the same as for regular business owners.

The KOR is intended for entrepreneurs (self-employed individuals, general partnerships, foundations, or private limited companies) who earn an income but do not operate primarily for profit. Determine whether the KOR is right for you based on your business goals. Do you want to grow? If so, the KOR may not be the best option. Are you part of a foundation or general partnership, and/or does your income come mainly from one-time (project) grants? If so, the KOR is definitely worth considering.

VAT – The Rates, Made Simple

VAT is a percentage of your revenue. In the Netherlands, we have different VAT rates. The type of revenue determines the VAT rate.

Suppose you sell paintings (or cultural services, ceramic mugs, or wooden tables that you design yourself). In that case, the goal of your sales is to make money, and you usually charge the high VAT rate of 21%. This is because there is no direct social function associated with this revenue (I know this is heresy in the art world, but bear with me), and as a result, the Dutch government requires you to charge the highest rate. The government assumes that your business is intended to make a profit. That makes sense, too, because no entrepreneur produces goods or services with the intention of operating at a loss.

Sample Calculation 1

As far as you're concerned, your painting is worth 300 euros. If you sell it, you charge 21% on top of that amount. You create an invoice with two lines:
300 euros for the painting and 21% of that 300 euros (= 63 euros).

The total amount on this invoice is therefore 363 euros, which your customer pays.
You pay 63 euros in taxes, and 300 euros is your revenue.

Sample Calculation 2

You like round numbers. You want your customer to pay 300 euros. This means that your revenue from that painting is less than 300 euros. (Divide 300 by 121 and multiply the result by 100 to get the base amount.) The sales revenue for your painting is then 247.93 euros, and the 21% VAT on the invoice is 52.07 euros.

Low VAT rate – 9%

A reduced VAT rate may sometimes be applied to both artistic services and goods. This rate applies to a work of art, performance, or text that has been created by an artist or cultural creator themselves and is recognizable as such.

For example: you’re going to paint a picture live at an exhibition opening. So you’re working in a performative and artistically autonomous way. Something is created that people can see, that visitors can interact with, and that can inspire them. In this case, you may apply the 9% rate. The purpose of your sale is partly to earn money, but also partly for the sake of education, performance, or artistic expression.

As a cultural entrepreneur, it’s easy to assume you fall under the 9% rate. More often than not, however, you’re actually required to charge the 21% rate. Be sure to do your research thoroughly before applying the lower VAT rate. If the Tax Authority determines that you should have charged the higher rate, you’ll be required to pay the difference out of your own pocket. The Tax and Customs Administration ’s website is quite clear on this, so check carefully to see if your services or goods qualify for the lower VAT rate.

No VAT – 0% or exemption

Suppose you teach painting classes to young people under the age of 18 at a school or nonprofit organization that is recognized by the government. In that case, your service or artwork serves a purely social purpose. You may then apply the 0% VAT rate (exemption).

If you provide services or goods to foreign countries, the 0% rate also applies, but most cultural entrepreneurs are subject to the 0% VAT exemption. The Dutch government has determined that certain professions are not subject to the standard VAT rates.

When determining your VAT rate, you should always consider the nature of your services or goods, as well as whether the customer is operating for profit. For example, do you teach at an institution that is not recognized by the government? In that case, your service may be partly for the public good, but the customer is still making money by purchasing your service. In that case, you charge 21% VAT.

In conclusion

Take yourself seriously as a cultural entrepreneur and know your rights and obligations. Don’t be afraid of paying taxes or filing tax returns—instead, look at it from a different perspective. Paying taxes means your business is doing well and that you’re succeeding in your venture. Believe in your professionalism and expertise as a creator, and by expanding your knowledge, consciously choose growth, autonomy, and independence.

So here's what you need to know

• Learn the basics of taxes and bookkeeping. As a business owner, you are responsible for knowing your rights and obligations.
• Find out if the KOR is right for you. Do you earn less than €20,000 a year and want to get started easily? If so, the Small Business Scheme might be a good option for you, but that doesn’t mean you no longer have to keep records.
• VAT is part of your revenue. In many cases, you charge the high VAT rate of 21% on your work or services.
• Sometimes the lower rate of 9% applies. For example, for certain artistic performances or works of art that you create and perform yourself.
• In certain situations, a 0% VAT rate or an exemption applies. For example, in the case of educational activities that serve a clear social purpose.
• Always check which tax rate applies to your situation. If you apply the wrong tax rate, the tax authorities may still charge you the difference.
• Don't think of taxes as just an obligation. They also mean that your business is thriving and that your work is generating income.