As of January 1, 2020, a new Small Business VAT Scheme (Kleineondernemersregeling or KOR) comes into effect in the Netherlands. Under this new scheme, all VAT-registered businesses can opt for an exemption designed for small businesses. Notably, the KOR now applies to legal entities established in the Netherlands and permanent establishments of foreign legal entities as well. To participate in the new KOR, you must notify the Dutch Tax and Customs Administration (Belastingdienst) in advance. By opting for the KOR, you effectively choose an exemption from certain administrative obligations. This means you will no longer issue VAT invoices, and you cannot deduct VAT on expenses and investments. In most cases, you also no longer need to file VAT returns. This overview outlines the main aspects of the scheme.
Notifying the Dutch Tax and Customs Administration
Participation in the KOR is entirely voluntary, and it’s not mandatory. To make an informed decision, you need to determine whether you qualify for the KOR and, if so, whether it’s advantageous for your specific situation. The scheme is more intricate than it initially appears and may not always be beneficial.
If you currently use the KOR (waiving administrative obligations), you don’t need to take any action unless you intend to apply the new KOR rules in 2020. If you do not expect to meet the new KOR requirements in 2020 or do not wish to utilize the new KOR, our advice is to inform the Dutch Tax and Customs Administration in writing by no later than January 1, 2020.
If you currently do not use the KOR but anticipate meeting the requirements in 2020 and want to utilize the KOR, you must notify the Dutch Tax and Customs Administration in writing by no later than November 20, 2019. Specific forms are required for these notifications, and your choice remains valid for three years, unless you no longer meet the conditions within that timeframe.
Small Business VAT Scheme Requirements
According to the scheme, you can opt for the KOR if your turnover in the Netherlands does not exceed €20,000 in a calendar year. Here, it’s essential to note that turnover refers to the total compensation for services and goods provided by you, excluding VAT. Therefore, when calculating the annual turnover for the KOR, you should not take into account any VAT that may be due. It’s important to remember that if you apply a margin scheme, your turnover is determined based on sales, not the margin.
A further complication arises regarding which turnover should or should not be considered when calculating the €20,000 threshold. Most turnover in the Netherlands counts towards this threshold if it is subject to Dutch VAT without the application of the KOR. However, there are exceptions, including certain VAT-exempt services, specific export sales, and transactions with embassies or foreign armed forces. Turnover from the sale of real estate or movable property for which you can claim depreciation for income tax or corporate tax purposes is also excluded. The same applies to certain VAT-exempt services provided in the Netherlands and turnover that is taxed or exempted outside the Netherlands.
Implications of the Small Business VAT Scheme
If you opt for the KOR, you lose the right to deduct VAT on expenses and investments. You may also have to repay a portion of the VAT on past investments. However, you will be exempt from many administrative obligations. Your bookkeeping becomes simpler, and you no longer need to submit VAT returns or issue invoices, among other benefits.
Exceptions to the Small Business VAT Scheme
Not all VAT transactions are treated equally under the KOR. You cannot benefit from the KOR if you purchase services or goods for which the VAT has been shifted to you. VAT shifting applies in various situations, with the primary ones being construction and when you buy services abroad or in the Netherlands from a foreign entrepreneur. In these cases, you must declare the VAT on your own return, but you cannot deduct it. Regular administrative requirements apply to these activities.
This also holds true when you provide services to a business established in another EU country. In such cases, you must still issue invoices, file VAT returns, and submit a recapitulative statement on an intra-community basis monthly. The scheme does apply to sales to other EU member states but not to the sale of new means of transport to another member state. Finally, the scheme does not apply to the sale of real estate and related rights that you have used in your business.
Conclusion
Are you considering the Small Business VAT Scheme and wondering whether it’s the right choice for your business? It may require extensive research to determine your eligibility and the overall benefits of opting for the scheme. Some situations may warrant caution, and in such cases, it’s advisable to seek guidance from our VAT specialists.
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