June 1, 2022
What is the hour criterion (urencriterium) in the Netherlands?
The hour criterion is a criterion that entrepreneurs have to meet to be eligible for certain tax deductions. In this article, we will explain what the hour criterion entails, how to keep track of the hours you worked, and why it is important.
The hour criterion consists of two criteria:
- You must spend at least 1,225 hours per calendar year on your business. Most entrepreneurs meet this requirement easily. All hours spent on your business count towards this requirement, including time spent on administration, marketing, and strategizing. If you start your business in the middle of the year, the minimum of 1,225 hours still applies. However, if your work is interrupted by pregnancy, you may count non-worked hours for a total of 16 weeks as worked hours.
For example, if you normally spend 40 hours per week on your business and you did not work for half a year due to pregnancy, you may count 16 weeks x 40 hours per week = 640 hours.
- You must spend more time on your business than on other activities (such as employment). You do not have to meet this requirement if you were not an entrepreneur in any of the previous five years.
How do you keep track of your hours worked?
We often get asked about keeping track of hours worked for the tax authorities. It is important to keep track of your hours worked. An Excel sheet with your hours worked is sufficient for this purpose. It is also important that your revenue/profit is in proportion to your hours worked. If that is the case, you are unlikely to be asked to prove your hours worked.
For example, if you claim the entrepreneur's deduction with a profit of €1,000 in 2021, it means you have worked for €1 per hour. This is generally unlikely, and you may be asked questions about your hours worked in this case.
Why is it important to meet the hour criterion?
The hour criterion is a requirement to be eligible for several entrepreneur's deductions. You must meet the hour criterion to be eligible for:
- the starter's deduction
- the self-employed deduction
- the research and development deduction
- the co-working deduction.
If you use these deductions but do not meet the hour criterion, you may face a significant penalty.
In short, it is useful to try to meet the hour criterion so that you can use the entrepreneur's deductions. It is also important to keep track of your hours worked.