VAT in The Netherlands, How Does It Work?

VAT is a fundamental component of the Dutch tax system, contributing significantly to government revenue and playing a pivotal role in shaping economic transactions. If you are considering company incorporation in the Netherlands, understanding how VAT works goes beyond just compliance to a strategic necessity. In the Netherlands, VAT serves as a compass for determining pricing strategies, impacting profit margins, and forming an overall financial plan. 

Understanding the Dutch VAT system is essential to avoiding penalties, guaranteeing timely tax payments, and making well-informed decisions. So whether you are an entrepreneur intending to open a company in the Netherlands or an established business seeking to expand, this blog is for you. 

In this article, we will branch into several areas of the Dutch VAT system, but at the end of the blog, you will have a great solid knowledge of this topic.

What Is VAT In The Netherlands?

For those new to this subject, let’s take things a bit backward for you. Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of the production and distribution chain. Unlike other forms of taxation, VAT is applied incrementally, meaning that it is collected at each supply chain step. The fundamental principle is that the final consumer bears the ultimate burden of the tax. 

Let's consider a simple example to understand Value Added Tax (VAT). Imagine a company that produces and sells bicycles. At each stage of the production and distribution chain – from raw materials to the final sale – a certain percentage of VAT is added to the value.

For instance, when the company buys raw materials, VAT is applied. Then, during the manufacturing process, another VAT is added. The same happens when selling to a distributor and, finally, to a retailer. At every step, VAT is collected on the value added.

Here's the catch: despite being collected incrementally, the consumer who buys the bicycle bears the full burden of the accumulated VAT. The price they pay includes the VAT from all previous stages.

Do you understand? If you don’t, kindly contact us as we will be happy to explain better.

Businesses are responsible for collecting and remitting the VAT to the government, making VAT a crucial component of the overall tax system. However, it is essential to distinguish VAT from other forms of taxation, particularly income tax. While income tax is levied on the profits individuals and businesses earn, VAT is collected regularly throughout the supply chain. Read our article on the different types of tax in the Netherlands.

Types Of VAT In The Netherlands

The Netherlands applies different VAT rates to various goods and services. Understanding these rates is crucial for businesses to calculate and collect VAT accurately. Note that the products and services you provide determine the VAT rate you charge; however, some goods and services may qualify for VAT exemptions.

The different VAT rates in the Netherlands include the reduced 9%, 0%, and the standard 21% rate. Here are some common ways these rates apply: 

• The 9% rate for specific services, e.g. hair salons and bicycle repair shops.
• The 9% rate for some products, e.g. Food, medication, books, etc.
• 0% VAT for international public transportation services.
• Products you supply to a business owner in another EU nation also have a 0% VAT charge.
• The general tariff is 21% 

Input Vat And Output Vat

The Input VAT and Output VAT are the tools used to calculate your VAT returns. They are fundamental for accurate VAT calculation for businesses in the Netherlands. Input VAT refers to the tax a business pays on its goods and services purchases. 

Output VAT is the tax a company collects on selling its goods and services to customers. The VAT payable to the tax authorities is determined by the simple equation: Output VAT - Input VAT. Below is an illustration of how to calculate your VAT:

• Suppose a business sells a product with a retail price of €100.
• If the standard VAT rate is 21%, the Output VAT would be €100 * 21% = €21.
• The total amount the customer pays, including VAT, is €100 + €21 = €121.
• Having purchased materials for €60 with 21% Input VAT, the business can deduct €12 (€60 * 21%) from its Output VAT.
• The net VAT payable to the tax authorities is €21 - €12 = €9

VAT Exemption In The Netherlands

Certain goods and services in the Netherlands may be exempt from VAT. Meaning no tax is applied to their sale. The Dutch tax authorities carefully define these exemptions, often used for essential goods and services. Examples of goods and services that may fall under VAT exemptions include healthcare, education, financial services, and specific cultural and nonprofit activities. Other exemptions for businesses include:

Special VAT Schemes for Small Businesses

Recognizing the administrative burden that VAT obligations can place on small businesses, the Netherlands offers special VAT schemes designed to simplify reporting and compliance. For example, the Small and Medium-sized Enterprises (SME) scheme may allow eligible businesses to submit less frequent and simplified VAT returns. 

Additionally, the VAT profit margin scheme is designed for companies that sell second-hand goods, allowing them to pay VAT only on the profit margin rather than the total selling price.

VAT Treatment for Intra-EU Transactions

Intra-community transactions involving the movement of goods or services between European Union (EU) member states have special VAT treatment. Such transactions are generally exempt from VAT in the seller's country, and the buyer accounts for it in their own country. 

This process aims to facilitate trade within the EU and create ease for businesses across member states. Understanding the VAT treatment for intra-EU transactions is vital for businesses engaged in cross-border trade within the EU to ensure proper compliance and accurate reporting.

Cross-Border E-Commerce And VAT Policy

Cross-border e-commerce has some complexities in VAT compliance, especially when goods are sold and shipped internationally. VAT rules for cross-border e-commerce vary based on factors such as the value of the goods, the destination country, and whether the seller is established in the destination country. If you opt to import items into the Netherlands, you will often be required to pay the import VAT tax at customs, just like in any other EU nation. 

The import VAT rate equals the standard rate of 21%, and the lower rate of 9% is commonly applied in the Netherlands. Nevertheless, there are other options in the Netherlands to postpone paying import VAT. You can import goods to The Netherlands while postponing your VAT in the three ways below:

1. In the Netherlands, register for VAT as a non-established company. Make use of your EORI and NL VAT numbers. When importing, pay the import VAT tax at Customs. You can then claim the VAT by filing your recurring VAT report. This choice is limited to businesses founded in an EU member state.

2. Use a General Fiscal Representative to register for VAT in the Netherlands. Use your NL VAT number to take advantage of the Article 23 license, which permits you to postpone paying the VAT.

3. Make use of a Limited Fiscal Representative's services. If you choose this option, all import and other transactions within the Netherlands will be made using your representative's NL VAT number. Your representative will take care of your VAT declarations and can postpone the import VAT using the Article 23 license.

Understanding the Reverse Charge Mechanism

The reverse charge mechanism is a critical concept in intra-community transactions. Under the reverse charge, the responsibility for reporting and remitting VAT shifts from the seller to the buyer. 

In other words, the buyer self-accounts the VAT on the transaction and reports it in their VAT return. This mechanism is particularly relevant for businesses that purchase goods or services from other EU member states. 

Additionally, A subcontractor hired under an outsourcing agreement is often responsible for paying the Dutch Tax and Customs Administration (Belastingdienst) the VAT. 

Nonetheless, a VAT reverse-charge mechanism (verleggingsregeling) may be applicable in some circumstances and industries (such as construction, shipbuilding, and the cleaning sector). This implies that you will be responsible for paying this VAT rather than the subcontractor and must include it in your VAT return. You must state on your invoice if the reverse-charge mechanism applies to any products or services you provide.

VAT Returns And Timing

A VAT return is a formal document that businesses submit to the tax authorities to report the amount of VAT they have collected (output VAT) and the amount they have paid (input VAT) over a specific period. Companies in the Netherlands are expected to file VAT returns regularly. 

However, the frequency of these filings varies based on the size and type of the company. In the Netherlands, the VAT return functions as a tax declaration mainly intended to notify the Dutch VAT authorities of your taxable activities within Dutch boundaries.

The VAT return gives a clear picture of a company's position by summarizing the input and output VAT for a given time. It must be filed quarterly for foreign enterprises and is required for persons or entities with a valid Dutch intra-community VAT number. Monthly VAT returns can only be filed by individuals who are represented fiscally by a tax representative located in the Netherlands.

Submitting A VAT Return in the Netherlands

In the Netherlands, businesses have two primary avenues for submitting their Value Added Tax (VAT) return; online submission and leveraging the expertise of a tax specialist.

• Online Submission: In the modern era, the Netherlands made the online process available for businesses to submit VAT returns through the website of the official tax authority. Online submission is often for extremely small businesses.

• Specialist Assistance: Now, most businesses prefer to use the services of VAT specialists or tax advisors. These professionals can assist in preparing accurate VAT returns and ensure compliance with the ever-evolving tax regulations. They can submit the returns on behalf of the business and represent you in the time of complexity.

How To Register To VAT in The Netherlands

Non-established foreign enterprises must first prove their presence in the Netherlands to register for Dutch VAT, which requires VAT identity. For the Dutch authorities to grant a Dutch VAT identification number, the taxable company must provide substantial proof that it will be involved in transactions that call for the number shortly. 

There are many other ways to provide proof, such as through contracts, order forms, warehouse rental agreements (which apply to distribution centers), import documents, transit records, invoices, or documentation of a merger or acquisition of a business.

The following additional documents are needed for registration, per the administration's requirements:

• A copy of the trade registry of the nation where the taxable entity is registered.
• A VAT certificate that was issued within the country of origin nation.
• The company's Act of Incorporation.
• A copy of the managing director's identity card.
• An attorney agreement between the foreign business and Eu Fiscalis Benelux.
• Evidence of activity within the Netherlands.
• Bank information.

Assuming all the filed paperwork is complete, getting a Dutch VAT number typically takes one to two months. Electronic submission of registration files is possible. Interestingly, VAT identification in the Netherlands is free and requires no additional administrative costs or tax stamps.

Deadline And Penalties For Filing VAT Returns

Filing VAT returns by the deadline is essential to avoid penalties and stay compliant. The precise dates change according to how frequently reports are received. Businesses usually have one month from the end of the reporting period to submit their VAT returns for quarterly reports. 

In contrast, annual returns typically have a more extended deadline, with companies having several months to file their yearly VAT return following the conclusion of the fiscal year. Businesses must pay close attention to and fulfill these dates to avoid possible problems with tax authorities. Only on-time or correct VAT filings can result in financial penalties for companies. 

The Dutch tax authorities take timely and accurate reporting seriously, and failure to comply may lead to consequences.

Penalties for late filings are typically calculated based on the delay period and the amount of VAT owed. Additionally, inaccuracies or discrepancies in the submitted information may result in fines. 

Why Hire a Tax Advisor for VAT in The Netherlands

Tax advisors, also known as tax specialists or tax consultants, are professionals who specialize in providing expert advice and assistance on various aspects of taxation. Their primary role is to help individuals, businesses, and organizations navigate the complex world of taxes, ensuring compliance with the Netherlands tax laws and regulations while optimizing financial outcomes. Here are some reasons why hiring a tax specialist in the Netherlands can be beneficial:

• VAT Rates and Exemptions: The Netherlands has different VAT rates and exemptions for various goods and services. A tax advisor can help you understand which VAT rates apply to your products or services and identify any exemptions that may be applicable. If you are unaware, forgot, or missed out on these exemptions, you will end up paying for what you could avoid.

• Record Keeping: Maintaining accurate and organized records is crucial for VAT compliance. Tax advisors like FirmNL can help set up effective record-keeping systems and processes to ensure that your business can easily provide the necessary documentation in case of audits.

• VAT Planning: A tax specialist can assist in developing VAT planning strategies to optimize the VAT position of your business. This may include structuring transactions in a way that minimizes VAT liability while remaining in compliance with regulations.

• Expertise and Knowledge: Tax laws are intricate and subject to frequent changes, this is one crucial aspect where a tax advisor is needed. For example here at FirmNL, our team stays abreast of these changes and possesses in-depth knowledge of tax regulations. Their expertise allows them to identify opportunities for tax savings and ensure accurate compliance.

• Cross-Border VAT Issues: If your business trades internationally, especially outside the EU, a tax specialist can guide you on handling VAT issues related to imports, exports, and customs duties. For those functioning in the import and export industry, it is advisable to work with a tax advisor.

You may wonder; “how do I get a tax advisor in the Netherlands”? We are glad to inform you that you are in the right place. Here at FirmNL, we are one of the best when it comes to the area of taxation. Allow us to handle the tax-related aspect of your business while you focus on other more pressing aspects. Contact us today to get started.

FAQs

• What is VAT?

Value Added Tax (VAT) is a consumption tax applied to the value added to goods and services at each stage of the production and distribution chain.

• How is VAT structured in the Netherlands?

The standard VAT rate in the Netherlands is 21%, but there are reduced rates of 9% and 0% for specific goods and services.

• Who is required to pay VAT in the Netherlands?

Businesses that provide taxable goods or services in the Netherlands and have a turnover above a certain threshold are required to register for VAT.

• What are the different VAT rates in the Netherlands?

The standard rate is 21%, the reduced rate is 9%, and certain goods and services are subject to a 0% rate. Some items, like books and medications, are exempt.

• Are there any VAT schemes for small businesses in the Netherlands?

Yes, there are various VAT schemes, such as the small businesses scheme (kleineondernemersregeling) that provide reductions or exemptions for businesses with lower turnovers.

• Can I get assistance with VAT compliance in the Netherlands?

Yes, businesses can seek assistance from tax advisors or accounting professionals to ensure proper VAT compliance and reporting.