New VAT small businesses scheme as of January 1, 2020

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 (such as 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 VAT obligations, a new small businesses scheme (kleineondernemersregeling; ‘KOR’) will apply as of January 1, 2020. The new KOR will significantly lessen the administrative burden on small businesses but is also relevant for other entrepreneurs that transact with small businesses. The contours of this scheme are set out below.

Target group new KOR

The new KOR 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, for example private limited liability companies (besloten vennootschappen; BVs), foundations (stichtingen) and associations (verenigingen). The scope of the new KOR is thus broader than the current KOR.

Conditions and implications of the new KOR

Roughly two conditions have to be met if the new KOR is to be applied:

1. The business must be established in the Netherlands or have a fixed establishment here.
2. The annual turnover realized in the Netherlands must not exceed EUR 20,000.

The new KOR includes a VAT exemption, under which the turnover realized by a business is not 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 is optional. Businesses are thus not obliged to apply the KOR, not even if they meet all the conditions. As soon as a business opts to apply the new KOR, it must do so for three years. It must therefore make a well-considered choice for the longer term. If, after three years, the business no longer wishes to apply the KOR, it must notify the Dutch tax authorities of this.

Calculating and monitoring the EUR 20,000 turnover ceiling

The turnover realized from the following activities performed in the Netherlands is included in the calculation of the annual turnover ceiling of EUR 20,000:

• goods supplies and services performed in the Netherlands that are subject to 21%, 9% and 0% VAT (both intra-Community supplies and export supplies);
• the supply and leasing of immovable property;
• financial services concerning credit, payment and investment;
• insurance and reinsurance services.

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 EUR 20,000, the KOR ceases to apply. The business must notify the Dutch tax authorities of this. Once the ceiling has been exceeded, the normal VAT rules apply, including the obligation to file VAT returns and to keep accounts and records. Moreover, the business cannot use the KOR in the three following years.

If the ceiling is exceeded, the KOR 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. 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 the KOR:

If businesses apply the KOR, 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:

• the supply of immovable or movable property (which would be depreciated for personal income tax and corporate income tax purposes) used by the business;
• the supply of a new means of transport to another EU country;
• goods supplies and services that are performed outside the Netherlands. Examples of this are the sale of products at a market in Belgium and the provision of electronic services to individuals living in another EU country;
• goods and services from another EU country purchased from foreign suppliers, which are subject to VAT in the Netherlands under the reverse-charge mechanism.

New KOR: attractive or not?

It is generally attractive for businesses to apply the new KOR if they 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 can 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 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.

What can you do now?

• Would you like to apply the KOR as of January 1, 2020? Then you must apply to the Dutch tax authorities before November 20, 2019. In the case of later registration, the starting date will be deferred to the next quarter.
• If you already apply the current KOR, you will automatically be registered for the new KOR. However, you must check whether you meet the new conditions. If you do not meet the new conditions, you must contact the Dutch tax authorities.

The tax advisors of Meijburg & Co’s Indirect Tax Group would be pleased to help you with the potential impact of the new KOR on your business. Feel free to contact one of them or your regular advisor for more information.