The small business scheme (KOR) can slow the growth of a small business, because it is attractive to stay just below the turnover limit of €20,000. Research on a similar VAT threshold in Finland showed that many business owners stayed just below the threshold, for years. The cause was mainly the paperwork that starts above the threshold, and less the VAT itself. This effect has not yet been studied separately for the Netherlands.
In short
- Under the KOR you charge no VAT and file no VAT returns, as long as your turnover stays at or below €20,000 per calendar year. You then cannot reclaim VAT either.
- In Finland, many small businesses stayed just below the VAT threshold for years. When the paperwork became simpler, this fell sharply. A lower VAT rate had no effect.
- If you sell mainly to businesses or invest a lot, the KOR is often not favourable. In the United Kingdom, almost half of small businesses chose to register for VAT voluntarily.
In this article
- What is the small business scheme?
- Does a VAT threshold like the KOR slow the growth of small businesses?
- Is it the VAT or the paperwork that holds business owners back?
- For whom is taking part in the KOR actually not favourable?
- What happens if your turnover goes above €20,000?
- How do you stop the KOR from getting in the way of your growth?
What is the small business scheme?
The small business scheme is a VAT exemption for business owners with a turnover of no more than €20,000 per calendar year. Participants charge customers no VAT and file no VAT returns. In return, you cannot reclaim VAT on costs and investments (Belastingdienst, small business scheme).
You do not have to send invoices for VAT purposes, but you must keep your purchase invoices. If you do send an invoice, you state that an exemption applies (Belastingdienst, what taking part means). So the scheme mainly saves paperwork, and for customers who do not deduct VAT it also saves money.
Does a VAT threshold like the KOR slow the growth of small businesses?
Research in Finland points that way. There, businesses with less than €8,500 turnover a year did not have to pay VAT. A striking number of businesses had a turnover just below that threshold, and a sizeable share stayed there for several years in a row (Harju, Matikka & Rauhanen, 2019).
Economists call this bunching: more businesses than you would expect group just below a threshold. The Finnish researchers used tax data on all Finnish businesses and their owners. The effect was strongest among sole traders and low-income service providers (Harju, Matikka & Rauhanen, 2019). Such clustering at thresholds occurs in many countries and schemes (Kleven, 2016).
The researchers found no clear evidence that businesses under-reported their turnover or split themselves up. They conclude that the businesses really produced less. So the threshold slows the growth of some of the smallest businesses (Harju, Matikka & Rauhanen, 2019).
Is it the VAT or the paperwork that holds business owners back?
Mainly the paperwork. In 2004 Finland sharply reduced the VAT just above the threshold, but business owners stayed below the threshold just as often. When Finland simplified the return for small businesses in 2010, that behaviour fell sharply (Harju, Matikka & Rauhanen, 2019).
With that simplification in 2010, businesses with less than €25,000 turnover only had to file a VAT return once a year instead of every month. The VAT relief could from then on be claimed by ticking a box on the ordinary form. According to the researchers, compliance costs, the time and effort needed to meet the rules, are the main reason small businesses stay below the threshold (Harju, Matikka & Rauhanen, 2019).
That people give paperwork a lot of weight is visible elsewhere too. American taxpayers leave large tax savings unclaimed to avoid paperwork. That choice shows that the cost of filing is higher than surveys previously estimated (Benzarti, 2020). For the KOR, this means that the convenience of not filing has a real value, which you should take into account.
For whom is taking part in the KOR actually not favourable?
For business owners who mainly sell to businesses or invest a lot. Business customers can usually deduct the VAT on your invoice, so you do not become more expensive for them. But under the KOR you miss out on the VAT you could have reclaimed on your costs and investments (Belastingdienst, whether or not to take part).
Research in the United Kingdom confirms that business owners make this trade-off. Some businesses stayed just below the VAT threshold, but almost half of the businesses below the threshold voluntarily registered for VAT and stayed registered. Voluntary registration was more common among businesses with large purchases, little competition and few sales to consumers. Bunching occurred in exactly the opposite case (Liu et al., 2021).
What happens if your turnover goes above €20,000?
Then you must deregister from the KOR immediately, and the deregistration takes effect at once. From that moment you charge VAT again and file returns (Belastingdienst, what taking part means). You can only rejoin after an exclusion period: the rest of the calendar year and the whole following year (Belastingdienst, whether or not to take part).
For consumers you then become more expensive, or you give up part of your margin. The standard VAT rate is 21% (Belastingdienst, VAT rates). A service of €100 costs a consumer €121 with VAT. If you keep the price at €100 including VAT, you keep €82.64 yourself.
You can always stop voluntarily. A deregistration then takes effect on the first day of the next quarter (Belastingdienst, what taking part means). Anyone planning a large investment should therefore think about the KOR beforehand, because without the scheme you can reclaim the VAT on that investment.
How do you stop the KOR from getting in the way of your growth?
By basing the choice on your customers and your plans, and not just on convenience. The Finnish research shows that it is mainly the fear of paperwork that keeps business owners below a threshold. That paperwork can be organised, whereas a missed growth opportunity usually cannot.
Who are your customers?
If you mainly sell to businesses, they barely notice the VAT and the KOR gains you little (Belastingdienst, whether or not to take part).
Will your turnover grow in the coming years?
Deliberately staying below €20,000 costs growth. If you expect growth, getting used to VAT now is often easier than later.
Are you planning investments?
Under the KOR you cannot reclaim VAT on investments. With a large purchase, that can cost more than the scheme yields.
One caveat: the studies come from Finland and the United Kingdom, with different thresholds and rules than in the Netherlands. The mechanism is general, though. A threshold above which a lot of extra paperwork begins makes it attractive to stay below it, even when growing would actually be wiser.
Sources
- Belastingdienst. Small business scheme (Kleineondernemersregeling, KOR). Accessed October 2026. belastingdienst.nl
- Belastingdienst. What does taking part in the small business scheme mean? Accessed October 2026. belastingdienst.nl
- Harju, J., Matikka, T. & Rauhanen, T. (2019). Compliance costs vs. tax incentives: Why do entrepreneurs respond to size-based regulations? Journal of Public Economics, 173, 139-164. doi.org/10.1016/j.jpubeco.2019.02.003
- Kleven, H.J. (2016). Bunching. Annual Review of Economics, 8, 435-464. doi.org/10.1146/annurev-economics-080315-015234
- Benzarti, Y. (2020). How taxing is tax filing? Using revealed preferences to estimate compliance costs. American Economic Journal: Economic Policy, 12(4), 38-57. doi.org/10.1257/pol.20180664
- Belastingdienst. Whether or not to take part in the small business scheme. Accessed October 2026. belastingdienst.nl
- Liu, L., Lockwood, B., Almunia, M. & Tam, E.H.F. (2021). VAT notches, voluntary registration, and bunching: Theory and U.K. evidence. The Review of Economics and Statistics, 103(1), 151-164. doi.org/10.1162/rest_a_00884
- Belastingdienst. VAT rates and exemptions. Accessed October 2026. belastingdienst.nl