November 30, 2022
Small Business Administration (KOR): What is it and is it financially beneficial?
You may have heard of the small business arrangement (KOR). Many people think the KOR sounds very attractive. Yet the KOR is not convenient for everyone, nor is everyone allowed to participate in the KOR. In this article, we will tell you everything you need to know about the KOR.
What exactly does the KOR entail?
The KOR is a sales tax exemption. When participating in the KOR, you do not have to charge sales tax to customers and you are not allowed to deduct VAT. The KOR is for all legal forms, so for sole proprietorships, partnerships, private limited company and foundations.
What are the conditions for participating in the KOR?
- You have a company established in the Netherlands.
- You have less than EUR 20,000 turnover in a calendar year. For the turnover limit, all turnover that would normally be taxed without the KOR count. Also the VAT-exempt turnover obtained from financial services, insurance services and delivery/rental of real estate counts for the limit of 20,000 euros.
When is it wise to participate in the KOR?
Participating in the KOR has two major advantages. The first advantage is that you do not have to file a VAT return and also only have to keep limited records. For many people, this saves a lot of time and stress. The second advantage is that you do not have to charge VAT to customers.
Suppose you provide services and charge an hourly rate of €50 euros excluding VAT. Without participating in the KOR you charge the customer €50 * 0.21 is €10.50 euro's in VAT. The customer then pays €50 + €10.5 = €60.5. You yourself ultimately receive only €50 net revenue because that €10.50 is VAT that you must pay. So the customer is willing to pay €60.50 per hour for your service. If you participate in the KOR you could then also charge €60.50 euros to the customer and then you do not have to remit VAT from that €60.50. You would then receive €60.50 instead of €50. You could also, while participating in the KOR, still charge your clients €50 euros per hour so that you are cheaper and can get more clients.
Thus, it could be financially advantageous to participate in the KOR. Only this is not the case in all situations. If you have many customers who are liable for VAT, it does not matter to them whether you participate in the KOR or not. This is because they are allowed to deduct the VAT from their profits anyway. Participating in the KOR is therefore particularly advantageous if you have many private individuals or VAT-exempt entrepreneurs as customers.
Also if you are going to invest a lot in one year, it is not useful to participate in the KOR. This is because when participating in the KOR, you may not deduct the VAT on investments and costs. This disadvantage of participating in the KOR is therefore particularly significant if you are going to invest a lot. It is therefore always necessary to consider whether the KOR is suitable for you.
When and how can you apply for the KOR?
Of course you can only apply if you meet the conditions mentioned above. You can apply at any time, but the KOR does not start immediately. The application form for the KOR must be received by the tax authorities no later than 4 weeks before the first day of the tax period in which you want the KOR to take effect.
For example, if you want the KOR to take effect in the first quarter of 2023, your completed form must be received by the tax authorities 4 weeks before January 1, 2023. In other words, the tax authorities must then receive your form no later than December 3, 2022.
How can you stop using the KOR?
A participation for the KOR is for at least three years, unless you exceed the turnover limit of 20,000 euros turnover excluding VAT per year. Then you must opt out of the KOR immediately. After those three years, your participation in the KOR is automatically renewed. To stop with the KOR, you must deregister yourself.
What should you do if you exceed the turnover limit of 20,000 while participating in the KOR? From the delivery by which you exceed the limit, you must immediately charge VAT to your customer. From then on, you may also reclaim VAT on investments and costs incurred after the KOR limit was exceeded. You still may not reclaim the VAT of all costs/investments before the excess and all turnover you made before exceeding the limit remains VAT free. From then on you must also keep your records again just like you do not participate in the KOR, because after exceeding you simply do not participate in the KOR either. You are not allowed to participate in the KOR for the next three years after exceeding the limit.
Hopefully it is now completely clear to you exactly how the KOR works and with this information you can estimate whether participation in the KOR is advantageous for you or not.
