Dutch reduced VAT rate set to increase – no additional vat on supplies paid in 2018
The 2017 coalition agreement provides for an increase of the current reduced VAT rate from 6% to 9%. This change will be part of the 2019 Tax Plan and will become effective on 1 January 2019. A recent announcement informed entrepreneurs that they will not have to remit the additional 3% VAT on prepayments they receive in 2018 for supplies they will render in 2019.
12 June 2018
No transitional provisions
You essentially determine the VAT rate at the moment you have to pay the VAT. This is the moment when you 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 you supply the goods or services. In case of prepayments, you have to pay VAT when you receive the payment.
Transitional provisions are generally provided for when VAT rates increase. For instance, for the most recent increase of the general VAT rate from 19% to 21% on 1 October 2012, it was determined that the rate of 21% would apply to supplies performed on or after 1 October 2012. For prepayments, the additional 2% VAT still had to be paid to the Tax Administration as of 1 October 2012.
State Secretary for Finance Snel recently announced that the 2019 Tax Plan will not include any transitional provisions relating to the increase of the reduced VAT rate. This means that no correction for the increased VAT rate of 9% is required for payments made before 1 January 2019 related to supplies rendered in 2019. So, entrepreneurs should merely remit the 6% VAT in the period in which they received the payment.
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. So, the increase will affect the VAT due on various goods and services. Without attempting to be comprehensive, we list in particular:
- Food and drinks
- 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
For entrepreneurs, the announcement made by the State Secretary alleviates the administrative burden involved in correcting the VAT on prepayments. Still the rate hike 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.