Budget Day: Dutch government proposes reduced VAT rate increase in 2019 Tax Plan
On 18 September 2018, Budget Day in the Netherlands, the Dutch government confirmed the proposal to increase the current reduced VAT rate from 6% to 9%. This change is part of the 2019 Tax Plan and if adopted by the Parliament and Senate will become effective on 1 January 2019.
19 September 2018
Goods and services affected by the VAT rate increase
In the Netherlands the reduced VAT rate applies to a wide range of goods and services. As a result, the increase will affect the VAT due on various goods and services. Without being exhaustive, here are a number of goods and services listed:
- Food and beverages
- Medicines, bandages and other items intended for medical use
- Objects of art
- Flowers, plants and arboricultural products
- Services of organisations whose object is the practice of sports
- The repair of bicycles, footwear and clothing as well as the services of hairdressers.
- The painting and plastering of dwellings as well as the installation of insulation material designed to conserve energy to floors, walls and roofs of residences. For both categories the reduced rate only applies if the aforementioned activities are conducted two years after the residences were first taken into use.
- The transport of people
- The provision of accommodation in hotels and campsites
- Provision of food and drinks in restaurants
- The admission to circuses, zoos, public museums, musical performances, theatres, cinemas, sports events and amusement parks
- The cleaning of residences
No transitional provisions
Taxable persons for VAT purposes essentially determine the VAT rate at the moment they have to pay the VAT. This is the moment when they issue, or should have issued, the invoice - or, in situations where there is no duty to invoice (e.g., for supplies to consumers) -, the moment when they supply the goods or services. In case of prepayments, taxable persons have to pay VAT when they receive the payment. In the past, transitional provisions were generally provided for when VAT rates increased.
However, the proposal confirms the announcement by the State Secretary for Finance earlier this year that the 2019 Tax Plan will not include any transitional provisions relating to the increase of the reduced VAT rate. As a consequence, a correction for the increased VAT rate of 9% for payments made before 1 January 2019 related to supplies rendered in 2019 is not required. As a result, entrepreneurs should merely remit the 6% VAT in the period in which they received the payment.
For entrepreneurs, the proposal alleviates the administrative burden involved in correcting the VAT on prepayments. Nevertheless, the rate increase has many relevant practical consequences you may need to consider. Below are some examples:
- Adjustments to ERP system
- Price adjustments
- Taking account of the rate increase in proposals for supplies to be rendered in 2019 or later, if these are not prepaid in 2018.