The New KOR

18 Apr The New KOR

The current small business ruling (kleineondernemersregeling in Dutch; hereafter referred to as KOR) will change from the 1^st of January 2020. As from the 1^st of January 2020, entrepreneurs can opt for an exemption from the VAT obligation. This article outlines the changes that you may be interested in.

The Current KOR
The current KOR entails that an entrepreneur who meets the conditions to be eligible for KOR receives a reduction in the annual VAT payable or does not have to pay VAT at all. These current conditions are:

– The entrepreneur is a sole proprietorship, or the company is a partnership of natural persons
– Established in the Netherlands.
– The annual VAT due after deduction of input tax is less than €1833,-
– The entrepreneur meets the administrative obligations for VAT.

In the case that the entrepreneur does not have to pay VAT at all, his or her annual VAT payable is less than or equal to € 1.345, -.

Because the current KOR takes the amount of VAT to be paid into account instead of the company’s turnover, large companies can also make use of this ruling. For example, an entrepreneur who mainly renders VAT-exempted services but also generates a small turnover from taxed services, may be eligible for the KOR. Another situation is that an entrepreneur who generates a huge turnover, but also incurs a lot of costs, with the result that a relatively small amount of VAT is due and therefore becomes eligible for the KOR. Thus, the current KOR, in some ways, fails to realise its objectives.

The New KOR – 01/01/2020
As from January 1, 2020, entrepreneurs with a maximum annual turnover of € 20,000 in the Netherlands can opt for an exemption from VAT. This means that the entrepreneur does not charge VAT to customers and is therefore no longer allowed to state VAT on invoices. The entrepreneur is also relieved of filing VAT returns and associated administrative obligations. On the other hand, this entrepreneur cannot deduct the VAT charged by others. The ruling only applies to the goods deliveries and services rendered in the Netherlands. Moreover, from 2020, legal persons, such as foundations, associations and limited companies, can also be eligible for the new KOR.

The new ruling will therefore take the turnover of the entrepreneur into account and no longer the VAT due after deduction of input tax. In addition, the ruling has been simplified by not granting a reduction in the VAT to be paid, but by granting an exemption. This also implies an exemption for filing a VAT return and the administrative obligations associated with it.

The question that remains is whether the new ruling will be (or not) financially beneficial. After all, the entrepreneurs do not pay output VAT but also cannot reclaim input VAT either. In this regard, applying the new KOR will fortunately be optional; therefore, the entrepreneurs for whom it is not financially beneficial can choose to apply the regular VAT rules.

Register for the New KOR?
You can register from June 1, 2019. If you would like to use the ruling from January 1, 2020, you need to register before November 20, 2019.

If you would like to receive more information and/or professional advice regarding the new KOR, do not hesitate to contact us.