THE NETHERLANDS - New rules regarding the special exemption scheme for small enterprises
The Dutch Ministry of Finance published on 30 March 2018 proposed Dutch VAT law changes with regard to the special exemption scheme for small enterprises (in Dutch it’s referred to as the OVOB).
These new rules will come into force on 1 January 2020. In this article we briefly describe the requirements and the consequences of applying the OVOB. As well, we discuss the implications with regard to the on-going revision VAT if the OVOB is applied.
Material and formal requirements for application of the special scheme
The OVOB can be applied by any VAT taxable person (regardless of their legal status) that is established in the Netherlands or that has a permanent establishment in the Netherlands. So, in contrast to the former special scheme for small enterprises (the KOR), under the new OVOB legal entities can also apply for the special exemption scheme. To qualify for the OVOB, the ‘revenue’ of VAT taxable persons must be EUR 20,000 or less.
The request to have the OVOB apply must be filed at least four weeks before the start of the applicant’s preferred VAT return period. And, when a VAT taxable person applies the OVOB, they must do so for at least three years. But, during this period the, revenue threshold cannot be exceeded. If it is exceeded, the taxpayer cannot apply the OVOB on the supply that exceeded the threshold or on subsequent supplies. VAT taxable persons can request application of the OVOB from 1 June 2019, in which case the OVOB will be applied starting 1 January 2020. Requests for application of the OVOB for the first VAT return period of 2020 must be filed by 20 November 2019 at the latest.
Threshold and exempt supplies
Member States have a certain degree of freedom to set their threshold for the application of the special exemption scheme. The Dutch revenue threshold for the application of the OVOB is set at EUR 20,000 per calendar year. It should be noted that not all exempt supplies are included when calculating the threshold. For instance, the supply or rent of immovable properties, some financial services, and (re)insurance services are excluded from the threshold. On the other hand, some services with regard to sports, education, and care must be included in the threshold. The Dutch legislature has not provided its reasoning with regard to the specific supplies it exempts from the revenue threshold.
Consequences of application of the OVOB
The application of the OVOB effectively discharges the VAT taxable person from the obligation to file VAT returns and the corresponding administrative obligations for the supplies in the Netherlands. By applying the OVOB, the VAT taxable person is not allowed to charge customers any VAT. As a result, VAT taxable persons who receive supplies to which the OVOB applies are not allowed to deduct any VAT on their input costs.
There may be instances where a good (whether moveable or immovable) is acquired before the OVOB was applied and the revision period (the period during which changes in the VAT taxable or exempt usage of a moveable or immovable good is monitored) for the acquired good is still not expired. From the moment the OVOB is applied, the good is deemed to be used for exempt supplies only. As a consequence, any initially deducted VAT must, in principle, be revised. The Dutch Council of State has proposed introducing a threshold of EUR 500 VAT so that in case the revision VAT is less than this amount, the initially deducted VAT need not be revised. However, the Dutch Council of State has not explicitly mentioned how this EUR 500 threshold will be interpreted. We expect that determination of whether this threshold is exceeded must be made on a yearly basis. Application of this threshold helps avoid having additional revision VAT due for relatively small investments, for example, for solar panel holders who supply energy to the grid and who, as a result, are considered entrepreneurs for VAT purposes.
We embrace the new harmonized rules with regard to the simplified exemption scheme for small enterprises (OVOB). A broader range of entrepreneurs can apply for it and the conditions are clearer than under the old special scheme for small entrepreneurs. If a company wants to apply for the special scheme they must do so on a timely basis.