Are you self-employed without employees and is your turnover less than €20,000? If so, you should know that the sales tax regulation for small entrepreneurs will change starting January 1st, 2020. You will have the option not to pay or declare VAT. In order to make use of this exemption immediately, you will have to register with the tax authorities before November 20th.
The regulation for small entrepreneurs (KOR) in the VAT legislation will change starting January 1st, 2020. Instead of the current tax reduction for small entrepreneurs, there will now be a tax exemption. You can make use of this if your turnover stays below €20,000.
According to the current regulation, you deduct the VAT that you have paid from the VAT that you have charged to your clients. When the remaining sum is less than €1,883, you only have to pay part of the VAT, or none at all. It can also occur that you become exempt from administrative obligations.
From 2020 onward, a VAT exemption related to turnover will take effect. You can make use of this if your turnover excluding VAT in a calendar year does not exceed €20,000. the turnover of VAT-exempt services is not included within this limit. This includes, for instance, medical and sports services, as well as services by writers and journalists.
Except for private individuals (one-man businesses) and partnerships of private individuals, such as a firm or general partnership, legal entities such as societies, foundations or private companies can also opt for the new regulation. The current regulation excludes legal entities.
Participation in the new regulation is voluntary, there is no obligation. You can decide for yourself what is best in your situation and weigh the advantages and disadvantages.
The advantage of taking part in the new regulation is obvious: you will not have to add or pay VAT anymore. You will not have to declare VAT anymore. This will save you from the administrative burden.
Do your clients mostly consist of individuals and organizations that can't calculate VAT? At the same selling price as before, the new regulation will make your margin higher. In this case, the new regulation will be attractive to you.
"If you want to be considered for the new regulation starting January 1st, you will have to register with the Tax Authority before November 20th."
Opting for the VAT exemption has a downside as well. For business investments or costs, you will not be able to deduct the VAT you paid as withholding tax.
Do you have many business customers? When using the new regulation, you will not be able to calculate VAT on purchases and business costs. This will cause your "purchase price" to increase. In order to maintain the same margins, you will have to increase your sales price excluding VAT. This means your product will become less interesting to business customers.
An additional drawback may be that it will be obvious to customers that you are just a small or part-time entrepreneur, with a turnover of less than 20,000. They will realize this right away, or they will ask you about it and you will have to explain why you do not charge any sales tax.
The choice you make is applicable for three years, or until the moment your turnover exceeds €20,000. When your turnover exceeds €20,000 in a given calendar year, you will have to notify the Tax Authorities at once. Starting that date, you will make VAT declarations again, because your exemption will become void. You will not be able to use this regulation for the next three years.
If you want to be considered for the new regulation starting January 1st, you will have to register with the Tax Authority before November 20th. You can register later as well. The starting date will move to the next period. That means you will be participating from April 1st 2020.
For more information, please see the Tax Authority website. It also includes some clarified examples.