Deduction of VAT

As this is a comprehensive memorandum, we recommend that you include it in pdf-format.

 

Essential to the system of the Btax on the Tattached WVAT is the right to deduct the VAT charged on services provided to the business (input VAT).

The deduction is compulsory

The deduction of VAT is essential to the functioning of the system. A business owner is therefore obliged to deduct VAT. Naturally, the conditions governing deduction must be met. Business owners may be fined if VAT is not deducted, is not deducted correctly, or is not deducted within the correct time period.

Conditions

VAT must be deducted if:

  • the service purchased is used in direct connection with transactions subject to VAT;
  • the service has been provided to the business owner;
  • a qualifying invoice has been issued to the business owner.

Taxable income

Taxable supplies are not only those subject to the standard (21%) or reduced (9%) VAT rate, but also those subject to the 0% rate:

  • intra-Community supplies;
  • exports (from the European Union).

Supplies outside the European Union, which would be subject to VAT if they had been made within the European Union, also qualify for VAT deduction as taxable supplies.

Services that qualify for an exemption or that do not take place in the course of economic activity are not subject to tax.

Customer

A business that deducts VAT must be the recipient of the supply. This is evident, for example, from the contractual relationship. The invoice serves as an indication of this.

Invoice

For the requirements that a VAT invoice must meet, please refer to the factsheet on this subject.

Destination

VAT is deducted in accordance with the purpose of the supply received:

  1. at the time the VAT is charged;
  2. upon the commencement of the service;
  3. in the final tax return for the year in which the asset was brought into use.

Immovable property is then monitored for 9 years and movable property for 4 years. A change in the designated use during this review period results in additional VAT payable or receivable (revision scheme).

Mixed use

When using incoming supplies for both taxable and non-taxable supplies, it is important to determine whether the incoming supply:

  • exclusively is used for VAT-inclusive prices taxed accomplishments: the VAT is then fully deductible;
  • exclusively is used for not including VAT taxed accomplishments: the VAT is then included in full not deductible.

For all services that do not fall into these categories, VAT is deductible on a pro rata basis:

taxable earnings / total earnings.

This is what is known as the pro rata scheme.

VAT in the hospitality sector

VAT is not deductible on:

  • the provision of food and drink;
  • for on-site use;
  • within a catering business (in the case of catering, this often involves a catering business operating on-site; for example, at company parties);
  • to people staying there for a short time.

Exclusion from deduction (BUA)

VAT charged on services used for the following purposes is also not deductible:

  • exhibitor expenses;
  • business gifts or presents (if given to someone who would not be able to claim VAT back, either in full or in part);
  • the following staff benefits:
  • housing;
  • remuneration in kind (excluding food and drink, and a bicycle under the bicycle scheme);
  • opportunities for sport, leisure and private transport (not a company car).

VAT on business gifts and benefits in kind remains deductible provided that the cost price excluding VAT per recipient does not exceed €227. The VAT due under the BUA must be included in the final periodic return each year.

Car (costs)

The VAT charged on (the cost of) a car is deductible. Naturally, the conditions set out above apply.

However, an annual adjustment must be made in respect of the private use of the car. For an explanation of this rule, please refer to our factsheet on this subject.

Unpaid creditors

Input VAT must be refunded where and to the extent that it is established that the trader has not paid the consideration for the services supplied to him. This must be done in any event if payment has still not been made one year after the payment became due (if payment is subsequently made, the VAT may be deducted again). The nature of VAT requires the trader to take the initiative to refund this VAT (in good time). This forms part of the regular periodic returns.

Types of VAT

All types of VAT are eligible for deduction, subject to all the conditions set out above. This therefore includes not only VAT charged by domestic traders. This also includes VAT relating to intra-Community acquisitions made by the business, VAT for which the liability has been reversed to the business, and VAT due in connection with the import of goods from outside the European Union.

Foreign VAT

It must, however, relate to Dutch VAT. VAT from one of the other Member States of the European Union can, if no VAT return is filed in that Member State, be reclaimed via the internet portal set up specifically for this purpose (separate username and password). For VAT refunds from outside the EU, the legislation of the country concerned must be consulted.

 

The purpose of this note is to outline a scheme. For the sake of readability, matters have therefore been simplified. VWGNijhof accountants and tax consultants is therefore not liable for the consequences of actions taken or not taken as a result of this memorandum.

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