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With effect from 1 January 2020[1] the Small Business Scheme in VAT (the KOR) will be replaced by a new scheme. With the “current KOR” hereinafter refers to the scheme in force until 31 December 2019. The new scheme will be referred to as the “new KOR”.
Current KOR
The current small business scheme consists of two schemes:
The reduction on the VAT balance applies by operation of law. It does not have to be requested (in advance). The application of the KOR may be processed in the time period VAT returns[4]. The exact operation of the current KOR is not described in this note.
Entrepreneurs who are structurally fully covered by the current KOR can request the Tax Administration to be relieved of administrative obligations. If this request is granted, the Tax Administration will issue a decision to that effect.
An entrepreneur with exemption from administrative obligations:
- does not mention VAT in any way on outgoing invoices;
- is not entitled to deduct VAT;
- Does not file VAT returns.
The current KOR applies only to Dutch resident or established[5]:
- natural persons;
- partnerships, in which only natural persons participate.
New KOR
The new KOR is not a reduction on the VAT balance, but a exemption of VAT[6]. Attached to this exemption is automatically the waiver of administrative obligations[7].
The exemption does not apply to supplies made to the entrepreneur:
- in which the taxation of VAT is reverse-charged[8];
- qualifying as an intra-Community acquisition[9];
- as well as for the delivery of immovable property, which the entrepreneur used in his business.
REMEMBER: in these cases, the entrepreneur himself must take action to remit the correct amounts of VAT on time!
REMEMBER: the entrepreneur who applies the new KOR (and is thereby relieved of administrative obligations) is, however, obliged to:
- keep copies of the invoices issued by him (or by his customer on his behalf) (obviously to enable verification of the turnover threshold)[10];
- keep the invoices received by him from suppliers (in order to apply the revision rules once the KOR is no longer applied).
Entrepreneurs with a turnover not exceeding €20,000 in a calendar year in the Netherlands can choose to apply the new KOR.
An entrepreneur who does not opt for the application of the KOR must of course comply with all VAT obligations.
The new KOR applies to all VAT entrepreneurs, who:
- are located in the Netherlands;
- are not established in the Netherlands, but have a permanent establishment in the Netherlands[11].
As a result, BVs, foundations and associations (among others), whose turnover remains below the threshold, can also opt to apply the new KOR.
A property lessor, applying the new KOR, cannot opt for VAT-taxed rentals[12].
A trader applying the new KOR cannot use the reverse charge VAT option when importing goods[13]. Any pending authorisation will be revoked upon opting for the new KOR. As a result, VAT will have to be paid at customs at the time of clearing the goods to be imported.
An entrepreneur, choosing to apply the new KOR[14]:
- does not mention VAT in any way on outgoing invoices;
- is not entitled to deduct VAT;
- Does not file VAT returns.
With the introduction of the new KOR, the option to file annual returns will disappear. The return period for VAT is the calendar quarter. This can be changed to calendar month:
- at the request of the entrepreneur (usually in connection with expected refunds);
- by the tax authorities: when the entrepreneur fails to comply with VAT obligations.
Turnover
The turnover for the turnover limit of €20,000 of the new KOR is the sum of the fees for all fees paid by the entrepreneur[15]:
- performed in the Netherlands[16], VAT-taxed (apart from the application of the KOR) supplies of goods and services (NOTE: also when the 0% rate is applied and/or when the collection of VAT is shifted to the customers)[17];
In respect of supplies of goods where VAT is paid from the profit margin[18], only the profit margin is counted as turnover for the KOR[19].
- the following exempt[20] accomplishments:
- supplies of immovable property (not used in the entrepreneur's business);
- rental of real estate;
- supplies and services of means of payment and securities;
- financial services;
- (re)insurance services;
except when these performances are related to other acts.
The supply of goods used by the entrepreneur in his business is not taken into account as turnover[21]:
- immovable property;
- movable property on which the entrepreneur depreciates for income or corporate tax purposes (or could depreciate if subject to such tax).
Review
Because the new KOR is a VAT exemption, when signing up and signing out for the new KOR, as well as when the new KOR ends due to exceeding the turnover threshold, the revision rules work[22].
Revision will not be made (both in the situation where VAT would have to be paid and that where there is an entitlement to a VAT refund) if:
the change in deductions in the relevant financial year is less than 10% of the deducted VAT[23] or
Only where the revision is caused by notification for or termination of the new KOR, revision is also omitted where the VAT payable or receivable under the revision scheme is less than €500[24].
Signing up or signing out for the new KOR
The new KOR does not apply by operation of law. Entrepreneurs who want to be covered by the exemption must apply to the tax authorities. And entrepreneurs who no longer want to be covered by the new KOR can opt out.
Sign up
The application form for the New KOR is available on the Tax Administration's website: Form sales tax reporting KOR.
Notification is possible at the beginning of a tax period. The notification must be received by the Tax and Customs Administration at least 4 weeks before the start of the period.[25]. The new KOR can NOT be applied retroactively!
REMEMBER: this 4-week period also applies when starting a business. The notification must then have been made no later than 4 weeks before the start of the enterprise.
The new KOR applies indefinitely (see below for the option to opt out), but must be applied for at least 3 years[26].
It is therefore important to carefully weigh up whether opting for the new KOR at least in these 3 years will not lead to complications, for example because:
- on investments, VAT cannot be deducted during these 3 years;
- an entrepreneur applying the new KOR cannot choose to get a property laid with VAT[27] (Indeed, this trader does not meet the condition applicable in that context that the property to be acquired is used for 90% or more for supplies for which VAT is deductible).
Of course, even within these 3 years, the application of the exemption ends if the turnover threshold is exceeded in a calendar year. The exemption does not apply to the supply of the good or service giving rise to the excess and to all subsequent supplies of goods and services.
REMEMBER: the nature of VAT implies that the entrepreneur who exceeds the turnover threshold must himself take the initiative - on pain of penalties - to come to the payment of the VAT due, as well as to comply with all the administrative obligations associated with VAT, but of course also the revision rules (see above)!
An entrepreneur cannot opt for the application of the new KOR in the 3 years after exceeding the turnover threshold.
Unsubscribe
Unsubscribing to the new KOR should be done with the unsubscription form, which is also on the Tax Administration's website: Form notification termination KOR.
Although the legal text does not explicitly state this, it is clear from the explanatory note that the opt-out for the KOR must also be made at least 4 weeks before the intended end date.
After opting out, the application of the new KOR cannot be chosen for 3 years[28].
Transitional arrangement[29]
Entrepreneurs wishing to make use of the new KOR from 1 January 2020 must do so (in deviation from the statutory deadline of 4 weeks) no later than 20 November 2019 report to the tax authorities. If notification is late, the new KOR will take effect later:
- Notification on 13 August 2019: new KOR takes effect on 1 January 2020;
- Notification on 17 December 2019: new KOR takes effect on 1 April 2020 (for the 1e quarter 2020, normal VAT rules will apply);
- notification on 2 March 2020 (just within the 4 weeks before 1 April 2020): new KOR takes effect on 1 April 2020 (before the 1e quarter 2020, normal VAT rules will apply);
- Notification on 21 March 2020: new KOR takes effect on 1 July 2020 (for the 1e and 2e quarter 2020, normal VAT rules will apply).
Entrepreneurs who have been relieved of administrative obligations until 1 January 2020 are deemed to have made the notification for the new KOR (for them, the new KOR will automatically apply).
Entrepreneurs who do not wish to do so must opt out with the Inland Revenue no later than 4 weeks before 1 January 2020.
Those entrepreneurs who did not deregister on time will be subject to the new KOR. However, they can opt out of the new KOR before 1 January 2023 (i.e. within the deadline 3 years after the new KOR automatically takes effect for them).
Entrepreneurs, who have been relieved of administrative obligations, but who are likely not to meet the conditions imposed on the new KOR in 2020, are not deemed to have made the notification for the new KOR. These entrepreneurs are deemed to make their own request to be invited to submit VAT returns.
This concerns (in particular) entrepreneurs with a VAT balance within the limits of the current KOR, but with a turnover exceeding €20,000 per calendar year.
[1] The bill amending the Turnover Tax Act 1968 (Small Businessmen Modernisation Act), no 35 033. was published in the Official Gazette (No. 2018, 511) on 19 December 2018.
[2] Section 25 Turnover Tax Act 1968 and sections 24 - 25a Turnover Tax Implementing Order 1968.
[3] Article 25(3) Turnover Tax Act 1968, in conjunction with Article 25 of the Turnover Tax Implementing Order 1968.
[4] Under Article 24 of the Turnover Tax Implementing Decree 1968, a provisional reduction can be processed in the period returns, which is offset against the final reduction after the end of the calendar year.
[5] The Supreme Court ruled on 8-2-2019, no 17/04018 (ECLI:NL:HR:2019:194) that for a lessor of a Dutch holiday home residing outside the Netherlands (this case involved a Germany resident owner of a holiday home located in the Netherlands), the holiday home does not qualify as a permanent establishment in the Netherlands. As a result, the lessor residing outside the Netherlands is not established in the Netherlands and the KOR cannot be applied. The new KOR also requires the entrepreneur to be resident or established in the Netherlands.
[6] The new KOR will be regulated in an entirely newly worded section 25 of the Turnover Tax Act 1968 with effect from 1 January 2020. Where in this memorandum for the old KOR reference is made to this article 25, reference is made to the text applicable until 31 December 2019. Wherever this memorandum refers to this Section 25 for the new KOR, reference is made to the text applicable as of 1 January 2020.
[7] Section 25(5) Turnover Tax Act 1968.
[8] Under section 12(2), (3) and (5) of the Turnover Tax Act 1968.
[9] As referred to in section 17f Turnover Tax Act 1968. Pursuant to Article 1a, paragraph 2, subsection b of the Turnover Tax Act 1968, levy in respect of intra-Community acquisitions of exclusively VAT-exempt entrepreneurs only comes into play if the entrepreneur has acquired more than €10,000 in the current or previous calendar year. This threshold does not apply to the acquisition of new means of transport and/or excise goods.
[10] The obligation of section 35c of the Turnover Tax Act 1968.
[11] A holiday home located in the Netherlands is not a permanent establishment (Supreme Court 8 February 2019, no 17/04018; ECLI:NL:HR:2019:194).
[12] This will be added to Article 11(1)(b) at 5o Sales Tax Act 1968.
[13] For this purpose, a new paragraph 5 is added to Section 23 of the Turnover Tax Act 1968.
[14] Section 25(4) Turnover Tax Act 1968.
[15] Section 25(2) Turnover Tax Act 1968.
[16] What matters is where, for VAT purposes, the place of supply or service is located! This doctrine is not further explained in this note. The explanatory memorandum to the bill contains two clarifying examples.
[17] An intra-Community supply is a VAT-taxed supply made in the Netherlands. This is because the place of this supply is in the Netherlands (where the transport of the goods starts), but the VAT is calculated by applying the 0% rate.
[18] This is reported on page 22 of the Explanatory Memorandum to the original bill. The travel agency scheme and margin scheme in respect of used goods, art, antiques and collectibles.
[19] The Court of Justice (29 July 2019, No C388-18) recently ruled that Germany is acting in violation of EU law by taking only the profit margin into account for the application of the small business scheme. According to the Court, turnover should be determined on the basis of all amounts received or to be received by the reseller.
[20] Other exempted turnover does not count.
[21] Article 25(3) Turnover Tax Act 1968.
[22] Articles 13, 13a and 14 Implementing Decree on Turnover Tax 1968.
[23] Article 13(4) Implementing Decree on Turnover Tax 1968.
[24] This will be added to the ministerial regulation.
[25] This four-week period is explicitly mentioned in Section 25(6) of the Turnover Tax Act 1968.
[26] Section 25(7) Turnover Tax Act 1968.
[27] Article 11(1)(a)(2)o Sales Tax Act 1968.
[28] Section 25(7) Turnover Tax Act 1968.
[29] Article III of the Small Businessmen Modernisation Bill.