What is VAT?
VAT is a tax on goods and services that is borne by the final consumer and collected incrementally at each step of the production and distribution process. As a consumer, you already have experience of this, although you may not realise it. You pay VAT on almost every product, from computers to spaghetti.
VAT taxes the added value:
- A manufacturer of planks buys a tree trunk for €50. He makes a number of planks from it, which he sells to carpenters for €100 (in total).
- As a carpenter, you buy planks for €100. These planks are already more valuable than the tree trunk, but still limited as a raw material.
- You make a table from that wood, which you sell for €300.
- In other words, by adding time and expertise, a product is created at each step that is worth more than the initial product.
- This added value creation is taxed via VAT and paid for by the end consumer.
- Because the plank manufacturer, the carpenter and the end customer all pay VAT.
So, even as a self-employed person, you come across VAT: you charge your customers VAT and, vice versa, you pay your suppliers VAT. By the way, this VAT is not for you as you must pay it on to the Belgian government.
VAT deductions
However, as a self-employed person, you can deduct the VAT that you pay to your suppliers from the amount that you have to pass on, which is the amount you received from your customers. This is the principle of VAT deduction and it means that you don't actually have to pay VAT on goods and services purchased for your business.
In practice, of course, you pay VAT when you buy something. Only afterwards do you get that money back because you deduct it from the amount you have to pay to the Belgian state.
To sum up: as an entrepreneur, you are only an intermediary for VAT.
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What VAT regimes and rates are there?
If you are liable to VAT, it’s important that you charge VAT correctly and use the correct VAT rate.
VAT rates
Which VAT rate you have to charge is determined by what service you provide or what you sell.
- The standard VAT rate is 21%.
- There is also a 6% rate, which applies, among other things, to certain refurbishment works, agricultural products, certain food products, non-alcoholic beverages, certain medicines, books, and certain magazines.
- There is also a 12% VAT rate that applies, among other things, to coal and to pay-tv subscriptions.
On the website of the Federal Government you will find an overview of VAT rates.
Special VAT regimes
As the normal VAT regime can be quite challenging for small businesses, there are special regimes that reduce their tax obligations.
They have a choice between such a special regime and the normal one. VAT exemption is one of them, but there is also a flat-rate scheme.
Flat-rate VAT scheme
For some sectors and professions, VAT may be calculated on a flat-rate basis, on the basis of purchases or hourly rates, and not on the basis of invoices. You can benefit from a flat-rate scheme if you meet the conditions below:
You are a natural person.
- At least 75% of your turnover consists of activities that don't require an invoice.
- Your annual turnover does not exceed €750,000 (excluding VAT).
- Your activities are in one of the following sectors.
The scheme applies only to (source: federal government):
- Pharmacists
- Bakers, bread, and pastry makers
- Coffee shop owners
- Ice cream makers
- Chip shop operators
- Fairground operators
- Barbers, women's hairdressers, unisex hairdressers
- Retailers of various textiles and leather goods
- Newspaper and magazine retailers
- Food retailers
- Dairy product retailers and milk vendors
- Shoe-repair businesses
- Butchers and pork butchers
VAT return: when do you file it?
To start with, you need a VAT number. You can easily arrange for one via Securex.
VAT return
In the VAT return, you declare the VAT you have received from your customers. You should also enter the amount of VAT paid to suppliers for services or goods directly related to your business activity. You may deduct the VAT paid from the VAT received. You pay the remaining amount to the VAT administration.
It is very important that you accurately fill in the VAT return. That is why it's useful to call on the services of a bookkeeper or accountant to complete the VAT return. Incorrect and/or late returns can lead to hefty fines. And you want to avoid that at all costs.
Filing periodic VAT returns
Depending on the nature and turnover of your business, you submit your VAT return monthly or quarterly.
- Quarterly returns are the norm for most start-ups and entrepreneurs, as their annual turnover does not exceed €2,500,000 (excluding VAT). You may choose to do so on a monthly basis.
- Monthly returns are mandatory as from an annual turnover of more than €2,500,000 (excluding VAT).
Submitting an annual customer list
The VAT administration requires you to submit an annual list of taxable customers. The customer list is a list of the Belgian VAT numbers of your customers to whom your company has delivered goods or provided services in the previous calendar year for a total amount of more than €250 (excluding VAT).
You must submit the customer list by 31 March each year.
It can be filed electronically or on paper, but most self-employed persons have their accountant do it for them. So be sure to look for an accountant whom you can count on.
Note: Since 1 July 2016, there is no longer any need to submit an annual customer list if your business is entitled to the VAT exemption.
VAT audit: what are the rules?
Every self-employed person will be audited at some point, perhaps even several times. Even if you are a small business that is exempt, you can be audited. It can happen at any time, without prior notice.
Tip: The inspectors must show you their proof of appointment if you ask them to.
You must allow inspectors access to "all premises where you carry out your economic activity". Think of your office, workshop, garage, etc. However, they have no right to enter your private areas, unless they have an explicit authorisation from a magistrate.
The inspector is entitled to take away your closed accounts or, if you work digitally, the inspector may download or copy the data.
The normal audit period is 3 years from 31 December of the year in which the VAT became chargeable.
