The advent of the internet and the digital economy has seen an exponential increase in the number of small businesses in the Netherlands in recent years. Digital platforms quickly and efficiently match the demand and supply of goods and services.
Small businesses not only include landlords, food delivery riders, taxi businesses, handymen, and people who regularly offer goods for sale via classified advertising websites selling new and used goods (Marktplaats), but also the owners of solar panels. This trend is expected to continue in the future.
In order to relieve the growing number of small businesses from their value added tax (VAT) obligations, a new small businesses scheme (kleineondernemersregeling—KOR) will apply as of 1 January 2020. The new KOR regime will significantly reduce the administrative burden on small businesses, but also may be relevant for other entrepreneurs that transact with small businesses.
Target group, new KOR regime
The new KOR system targets every small business. In addition to individuals and partnerships of natural persons—such as professional partnerships (maatschappen) or general partnerships (vennootschappen onder firma)—legal entities can also make use of the new KOR system, for example private limited liability companies (besloten vennootschappen—BVs), foundations (stichtingen) and associations (verenigingen). The scope of the new KOR regime is thus broader than the current KOR system.
Conditions and implications of the new KOR system
In general, there are two conditions to satisfy under the new KOR system:
The new KOR regime provides for a VAT exemption, under which the turnover realized by a business will not be subject to VAT. For this to apply, a business must not charge VAT on invoices issued to its customers. The business cannot recover the VAT charged on purchased goods and services. It also does not have to keep a complete set of accounts or file regular VAT returns. Incidentally, the obligation to keep copies of purchase invoices has not been canceled.
The new KOR system is optional. Businesses are not required to apply the KOR rules—not even if they satisfy all the pre-conditions. As soon as a business elects to apply the new KOR regime, it must do so for three years. If, after three years, the business no longer wishes to apply the KOR rules, it must notify the Dutch tax authorities.
Calculating and monitoring the €20,000 ceiling
Turnover realized from the following activities performed in the Netherlands is included in the calculation of the annual turnover ceiling of €20,000:
When applying the margin scheme to the trade in used goods, art, and antiques or to services falling under the tour operators margin scheme (reisbureauregeling), the assessment of the turnover ceiling must be based on gross turnover and not on the margin on which VAT is calculated. If the business exceeds the turnover ceiling of €20,000, the KOR rules cease to apply. The business must notify the Dutch tax authorities of this fact. Once the ceiling has been exceeded, the normal VAT rules apply, including the requirement to file VAT returns and to keep accounts and records. Moreover, the business cannot use the KOR regime in the three following years.
If the ceiling is exceeded, the KOR system does not retroactively cease to apply. For example, if the turnover ceiling is exceeded during the year, then the activity that caused the ceiling to be exceeded no longer falls under the KOR rules. This also applies to all subsequent goods supplies and services. It is therefore advisable to, if possible, make price agreements with customers that are exclusive of VAT.
Activities not covered by new KOR system
If a business applies the KOR rules, then—by way of exception—the normal VAT rules, such as the obligation to file VAT returns and to keep accounts and records, still apply to the following activities:
Is the new KOR regime attractive? In general, it is for businesses that find themselves in a VAT-remittance position and thus almost always have to make a payment to the Dutch tax authorities for each VAT period. The new KOR regime may also be attractive for businesses supplying goods or services to customers that are not entitled to recover VAT or only have a partial VAT recovery entitlement, such as individuals, institutions governed by public law (e.g., government bodies such as municipalities) and institutions active in education, healthcare or the provision of financial services.
The new KOR regime may not be attractive for businesses with relatively high input VAT, for example because they make investments or incur relatively high costs on which VAT is charged. Because VAT on purchases is not deductible under the new KOR, this VAT will continue to be payable and thus increase the cost of goods and services.
Businesses seeking to apply the KOR system as of 1 January 2020, must apply to the Dutch tax authorities before 20 November 2019. Later registration means that the starting date will be deferred to the next quarter.
Businesses that already apply the current KOR regime will automatically be registered for the new KOR system. However, the business must determine whether it satisfies the new conditions, for if it does not, the business must contact the Dutch tax authorities.
Read an October 2019 report prepared by the KPMG member firm in the Netherlands
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