Small Business Scheme (KOR): Is it right for your startup?

1. Introduction: The Dutch Startup Opportunity and the KOR

The Netherlands is a premier global destination for innovation and entrepreneurship. In 2023, Dutch startups demonstrated their strength by securing over $2.2 billion in funding. This dynamic ecosystem provides a solid foundation for international founders to grow their businesses.

To support small-scale operations, the government offers the Small Business Scheme (KOR). This is a voluntary VAT exemption for businesses with an annual turnover below €20,000. It aims to simplify financial life for early-stage companies.

Choosing to join the KOR is a significant strategic move. While it offers administrative relief, it is not a one-size-fits-all solution. You must evaluate if this scheme aligns with your specific business model and growth targets.

2. The Fundamentals: How the KOR Works in 2025-2026

The KOR is available to entrepreneurs whose annual turnover in the Netherlands stays under the €20,000 threshold. It is vital to understand that this limit refers to turnover excluding VAT. There is a clear distinction between turnover (total sales) and profit (what remains after costs).

• Eenmanszaak (Sole proprietorship)
• BV (Private limited company)
• VOF (General partnership)
• Foundations and Associations

Under the “No VAT” rule, you do not charge VAT on your invoices. In return, you do not remit VAT to the Tax and Customs Administration (Belastingdienst). Note that the KOR only applies to VAT and has no effect on Income Tax (inkomstenbelasting).

3. Strategic Benefits: Why Startups Choose the KOR

Many entrepreneurs find the KOR attractive because it provides immediate operational advantages. We generally categorize these benefits into three main areas:

1. Administrative Relief: You are no longer required to file quarterly VAT returns. This saves significant time and reduces your bookkeeping costs.
2. Price Competitiveness: In B2C markets, you can lower your prices by not charging the 21% VAT. Alternatively, you can maintain your prices and increase your own profit margins.
3. Cash Flow Management: You keep the “VAT portion” of every sale immediately. This provides extra liquidity that you can reinvest into your startup’s daily operations.

4. The Strategic Trade-offs: When the KOR Becomes a Disadvantage

As a senior strategist, I advise clients to look closely at the “hidden” costs of the KOR. The scheme can create financial friction in specific scenarios:

• The Input VAT Issue: Participants cannot reclaim VAT paid on business expenses. If you purchase expensive equipment or software, that 21% becomes a permanent cost to your business.
• B2B Perception: VAT-registered clients may find you less attractive. To a business client, a €100 invoice plus VAT effectively costs them only €100. If you charge €110 to cover your costs, you are 10% more expensive to them.
• The Lock-In and Re-entry: Once you join, you are generally committed for three years. If you exit the scheme voluntarily, you cannot rejoin for two years starting from 2026.

5. International Expansion: The New EU-KOR Framework

Effective 2025, the KOR has expanded into a cross-border framework for small businesses. Dutch entrepreneurs can now apply for VAT exemptions in other EU Member States. This is managed through a single registration via the Dutch Tax and Customs Administration.

• Your total annual turnover within the entire EU must not exceed €100,000.
• You must stay below the specific local turnover thresholds in each country where you seek exemption.
• You must utilize the “One-Stop Shop” (OSS) system or specific reporting portals provided by the Belastingdienst.

6. Implementation Guide: Deadlines and the Application Process

The application is a formal digital process through the Belastingdienst portal. You must use the form “Melding omzetbelasting kleineondernemersregeling” to notify the authorities.

Critical Deadlines The Tax Office enforces a strict four-week rule. For example, to start on January 1, 2026, you must submit your application by December 3, 2025. Late submissions will delay your participation until the following tax period.

Deregistration Rules If your turnover exceeds €20,000 excluding VAT, you must notify the Tax Office immediately. You are required to start charging VAT from the exact moment you cross the threshold. Failing to report this change can lead to heavy penalties and retroactive assessments.

7. Decision Framework: Is the KOR Right for Your Specific Model?

Consider these two common scenarios to determine your best path:

Scenario A: Ideal for KOR This suits service-based freelancers with low overhead who primarily serve private individuals (B2C). If your costs are minimal, losing the right to reclaim VAT is less impactful. The administrative simplicity allows you to focus entirely on your craft.

Scenario B: Avoid KOR This applies to startups requiring high upfront investment or those using the KIA (Small-scale investment allowance). Because you cannot reclaim VAT in the KOR, your equipment costs effectively rise by 21%. Furthermore, if you serve corporate (B2B) clients, the lack of VAT deductibility makes you less competitive.

Strategic Advice: Timing Matters If you plan to join the KOR, consider making large business purchases before your start date. This allows you to reclaim the VAT upfront. However, you must remain mindful of the VAT revision rules discussed below.

1. What is the total VAT I will lose on planned investments over the next three years?
2. How will my B2B clients react to a non-deductible invoice?
3. Will the KOR cost more than the income tax benefit provided by the KIA?

8. Critical Warnings and Compliance Risks

VAT Revision Rules: If you have previously deducted VAT on assets, you may have to repay a portion upon entering the KOR. For movable property (like laptops), the revision period is 4 years after the year of use. For immovable property, it is 9 years. You must repay 1/5th or 1/10th of the VAT for each remaining year in these periods.

Car Correction: The 2.7% or 1.5% car correction for private use of a business vehicle still applies. This must be calculated even if you are exempt from regular VAT filings.

Compliance Risk: You must monitor your turnover constantly. If you exceed the €20,000 limit and fail to charge VAT immediately, you will be liable for the unpaid tax yourself.

9. Conclusion: Finding the Balance in Your Tax Strategy

The KOR is a valuable tool for simplifying your early business stages, but it requires a long-term perspective. It provides breathing room by reducing paperwork and helping with initial cash flow. However, tax strategy should always facilitate your growth rather than limit your investment potential.

Before committing, ensure that the administrative ease is worth the potential loss of VAT deductions. A strategic choice now will ensure your startup remains financially robust as it scales.

10. How we can help you

Choosing the correct VAT status is a fundamental part of your business’s success. We invite you to contact NextAccounting for a personalized “KOR Scan” or a comprehensive tax strategy session.

Sources

• 2025 Article IV Consultation-Press Release; Staff Report; and Statement by the Executive Director for Germany – IMF
• 2025 Year-End Tips – AAme Adviseurs
• 2026 Tax Plan – overview of measures – Deloitte
• All about VAT and international business – KVK
• Beyond Boosterism – The Economy 2030 Inquiry – Resolution Foundation
• Btw-regelingen en -vrijstellingen – Ondernemersplein
• Changes in law and regulations 1st quarter 2026 | Business.gov.nl
• Changes to the Small Business Scheme (KOR) 2025 – Lupacompany
• Dutch small businesses scheme (KOR) | Business.gov.nl
• Further reduction of private business ownership allowance in 2026 – Business.gov.nl