How VAT works in the Netherlands

Value Added Tax, or VAT, is a tax system that is used worldwide (the USA being one notable exception) and everybody pays it day-in-day-out. Businesses need to deal with the administrative burden of the VAT system and that isn’t always straightforward. People setting up their business in the Netherlands should grasp a few key aspects, especially when it’s their first company. In this article we will go through the basics of what VAT is, how it works in the Netherlands and whether it even applies to you (as a foreign company).

What is VAT?
VAT is a tax levied on the end-consumer, but is applied (and reclaimed) throughout the whole chain leading up to the end consumption. This means that, in a B2B relationship, VAT is never an actual financial cost, only an administrative requirement. VAT paid can usually be reclaimed and VAT charged must always be returned to the Tax Authorities, or offset with other purchases. The Dutch call VAT “Belasting op Toegevoegde Waarde”, BTW in short.

Everyone in the Netherlands who engages in economic activities is subject to VAT law, which means they must charge and return VAT on their services or goods. If a Dutch citizen registers a company in the Netherlands, the company is then automatically subjected to VAT law. The trouble starts when a foreign company or natural person registers a company in the Netherlands to conduct economic activities here.


What things do I have to consider under Dutch VAT?
Before you can do any business, you need a VAT number. You will get this automatically after setting up your business here, as the Chamber of Commerce informs the Tax Authorities you have set up shop here. You will get the number via regular mail at your business address within about 2 weeks. The Dutch VAT regime for almost all products and services is 21%. Exceptions are food and other things considered necessities, which are taxed at 9%. For a full list see here (in Dutch). Very important VAT basics:

1. Keep a tidy administration. All your VAT invoices must be kept in your administration, and must match your incoming and outgoing payments.

2. VAT returns are performed quarterly in the Netherlands. After the quarter, you have one full month to file your VAT returns. The terms are very strict, and penalties instantly kick-in if you let the deadlines pass.

3. Your invoices need to comply to a certain standard. Most notably, they must include your company’s information, Chamber of Commerce registration number and VAT identification number. Online bookkeeping tools like Moneybird have this all covered.
   
   

You invoice the applicable VAT rate and return any VAT received to the Tax Authorities. You may reclaim any VAT paid as long as it concerns a business expense. A business expense is any expense you have incurred for the furtherance of your business. This can be anything from envelopes to kick-back commissions to advertising costs. Notable VAT carrying expenses that are VAT reclaimable:

1. Start-up costs incurred prior to setting up your company. These invoices may pre-date the actual setup of your company, as long as they are business expenses.

2. Purchase and maintenance of a company car.

3. Office rent.
   
   

Notable VAT carrying expenses that are not VAT reclaimable:

1. Business dinners. Only if your company has an in-house restaurant, the VAT may be reclaimable up to a certain amount.

2. Business suits.

3. Items that also have a private-use character, like laptops and smartphones are only partly reclaimable.
   
   

Notable transactions that do not carry VAT at all:

1. Loans

2. Share purchase prices

3. Deposits
   
   
   

When am I subject to Dutch VAT? 
When you operate a company in the Netherlands, you are per definition subject to Dutch VAT rules. But not all business in the Netherlands is done by companies operating from here. Foreign companies doing business with clients in the Netherlands, can become VAT subject here in broadly speaking 4 situations :

1. Having warehoused goods in the Netherlands. If you move goods into a warehouse here, this will trigger a VAT obligation. Make sure to register before importing your goods, so you can reclaim import VAT on your VAT return.

2. Using an online platform to sell in the EU may trigger VAT. Some marketplaces have shifted the responsibility for VAT to the sellers, which means you need to be VAT registered before you can sell.

3. Exceeding a so-called “EU distance selling threshold”. You can sell cross border within the EU up to a certain amount, with being subject to VAT in the buyer’s country. This was implemented to make the EU’s internal market more accessible. Once you hit a certain threshold though, a VAT obligation does kick  in. The thresholds differ per country. For example, the Netherlands and Germany use € 35,000 in sales (exc. VAT of course) in any one calendar year. In July 2021, the threshold will be lowered to € 10,000 for all EU countries.

4. Drop shipping from a supplier within the EU. The biggest difference between drop shipping and the standard retail model is that the selling merchant doesn’t stock. Instead, the seller purchases inventory as needed from a third party, usually a wholesaler or manufacturer, to fulfil orders. Since the seller still is the owner of goods before they are transported to the final customer, he is liable for VAT in the country the stock is held.

If this is the case, you need to register at the Dutch Tax Authorities and get a VAT number here.

What do I charge when invoicing a foreign client? 

As a rule, you don’t charge VAT when dealing with companies within the EU. This is called intra-communautaire business. You invoice them with a 0 % VAT rate. You do need to record and check your client’s VAT identification number. If you’re selling goods, you need to have paperwork to prove that the goods were actually sent to that EU country. And don’t forget to mention the transaction in your quarterly VAT returns, under the 0% rate.

When invoicing natural persons, different rules apply. As a rule you need to charge normal Dutch VAT to the foreign client. This VAT needs to be paid back in your Dutch VAT returns. In addition, you may be subject to the foreign country’s VAT regime. See for example the selling threshold mentioned under 3. above. When dealing with a client outside the EU, you normally charge 0% VAT. Even when the client is a natural person. When you are exporting goods, you need to again be able to prove the goods actually left the EU for the client’s country.

NB: There are a number of exceptions that apply to VAT and foreign clients. If you want to make sure, please make sure you hire tax counsel in advance.

How to get a VAT number

If you are setting up a Dutch company, your first question is probably : when do I get my Netherlands VAT number? If your company is setup with a director or shareholder who is registered in the Netherlands at the moment the company is registered, the VAT number must normally follow automatically after weeks. If the aforementioned is not the case, the Dutch Tax Authorities will not automatically consider the new company a subject to Dutch VAT law which, in effect, means the company cannot engage in economic activities in the Netherlands. For this particular problem we will explore three different solutions.

1. Have a local director or shareholder
Once you incorporate your new Dutch company it will be registered at the Netherlands Company Register (KVK). The Netherlands Company Register, in turn, will notify the Dutch Tax Authorities of the new company registration. The Dutch Tax Authorities will then decide whether to grant the new BV its Netherlands VAT number immediately or not. This decision is automatically made based on whether the BV has a director or single shareholder natural person with a Dutch citizenship number (BSN number) registration. If this is the case, the Dutch Tax Authorities will assume the company has enough business connection to the Netherlands to immediately grant the BV its Netherlands VAT number. You will then receive the Netherlands VAT number via regular mail at your business address within 2 weeks.

2. Communicate with Tax Authorities
If you set up a company with no shareholders or directors with a BSN number at the moment of registration, you will receive a letter from the Tax Authorities inviting you to explain your business in the Netherlands. Oddly enough the letter is only in Dutch, even though the recipient is per definition not a Dutch citizen and is therefore unlikely to understand its contents. Even still, you are required to answer this letter if you ever want to obtain your Netherlands VAT number. The Tax Authorities require an elaborate answer to their letter, explaining what kind of business you are going to do in the Netherlands and whether this has any connection with the Dutch economic sphere. You are required to prove this, for example by showing business contracts, invoices, letters of intent or other documents that show (prospective) economic activity in the Netherlands. If you can explain that directors or shareholders will relocate to the Netherlands within the foreseeable future, this may also help here. It is wise to have an accountant or bookkeeper on board for your Dutch company, if you want to navigate these waters. If you need help here, contact us (or push the Whatsapp button on this page).

3. Hire a local Tax Representative
If you don’t have a local director or shareholder in the Netherlands with your company, and subsequent communication with the Tax Authorities does not provide you with a Netherlands VAT number either, there may be some other solutions available. A good option is to appoint a local tax representative for your company.

A Tax representative may help you with all sorts of additional VAT services you may require, such as :

- Dutch VAT returns : Dutch companies need to file and pay their VAT returns on a quarterly basis. This is the moment where they pay back any VAT charged back, or reclaim any VAT paid, to the Dutch Tax authorities. You can also read up more information on how VAT works in the Netherlands in general.

- Import VAT deferment license: When goods are imported from outside the EU into the Netherlands, both import duties and import VAT must be paid at the Dutch customs directly when the goods enter the country. Import duties need to be paid and cannot be reclaimed, but import VAT can be reclaimed as normal during Dutch quarterly VAT returns. With an import VAT deferment licence (article 23 licence), you don’t have to pay VAT at the moment the goods enter the country but only reported in your normal periodic VAT returns in the Netherlands. This creates a cash advantage because import VAT due can be reclaimed in the same VAT return.

- EC Sales listing: Goods shipped from the Netherlands to a business in another EU member state need to be reported not only in the quarterly Dutch VAT returns, but also in a separate EC Sales Listing. Not only sales, but also the intra-community shipment of goods from the Netherlands to other EU member States is treated as an intra-community supply. In EC Listings the values of the intra-community sales and the EU VAT number of the recipient are reported. EC Sales Listings must be submitted in the same frequency as your VAT returns.