When tax partners collaborate in a business, there's a tax-advantageous option to form a husband-and-wife firm or partnership. How does this work?
Both fiscal entrepreneurs. In a husband-and-wife partnership, both partners can be considered entrepreneurs for income tax purposes if they both contribute capital and/or labor to the partnership and agree on a profit sharing arrangement. Furthermore, they must both be directly related to the obligations related to the business.
Tax benefits. Establishing a husband-and-wife partnership can offer several tax advantages for partners. For example, if the hours criterion is met, both partners may be eligible for the self-employed persons' tax deduction and, for a period of three years, for the additional deduction of €2,123 for start-up entrepreneurs.
How many? The self-employed persons' deduction is a fixed – profit-independent – amount and amounts to 2020
€7,030. For entrepreneurs who have reached the state pension age at the beginning of the calendar year, the self-employed persons' deduction is 50% of the self-employed persons' deduction for entrepreneurs who have not yet reached the state pension age at the beginning of the calendar year.
Benefit from lower tax rates? Profit distribution can offer additional attractive tax benefits. The income tax rate is progressive (increasing). Higher incomes are taxed at a higher rate. For example, you could take profit from the husband at the high income tax rate (approximately €49,50%) and transfer it to the wife at a lower rate. This creates a nice income tax advantage. However, be sure that the profit distribution in the husband-wife firm is fair; the tax authorities will monitor this.
Profit distribution can yield additional tax benefits. Use our profit distribution calculator for husband-wife firms.
