Dutch reduced VAT rate set to increase from 6% to 9% in 2019
On 10 October 2017, the incoming coalition government presented its tax plans, including its intention to increase the current reduced VAT rate of 6% to 9%. The estimated revenues that this measure is going to generate will be used, amongst other things, to finance the proposed reduction of the income tax. In this alert we discuss the consequences of the announced increase of the reduced VAT rate.
12 October 2017
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. The announced increase of the VAT reduced VAT rate will have its effect on the pricing level of these 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 residents 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.
As a practical consequence of this increase you as an entrepreneur will have to adapt your pricing levels and implement the increase in reduced rate and the correct transitional scheme in your ERP-systems, presumably from 1 January 2019.
Questions may arise in situations in which you perform the transaction before 1 January 2019, but issue the invoice after 1 January 2019. Similar questions may arise when it is the other way around: how do you deal with situations in which you perform the transaction after 1 January 2019 but receive payments before 1 January 2019?
Normally, you determine the applicable VAT rate when that VAT becomes chargeable. This is the moment you issue an invoice or were supposed to do so, or, in case the issuance of an invoice is not mandatory (for example, when performing transactions to consumers), the moment that goods are delivered or services are performed. In cases in which you receive payments in advance, the VAT becomes chargeable when these payments are received.
The last time the VAT rate was increased, which was when the standard VAT rate was increased from 19% to 21%, an explanatory memorandum was issued, which stated that the applicable VAT rate should be determined when you perform an actual transaction. We expect a similar explanatory memorandum for the announced increase of the reduced VAT rate. In cases in which you perform transactions before 1 January 2019, but issue the invoice on or after 1 January 2019 this would mean that the VAT rate of 6% is applicable. This also means that in case payments are received before 1 January 2019 but transactions are performed after January 2019, you are obliged to charge an additional 3% VAT to your customer.
In accordance with article 52 of the Dutch Turnover Tax Act 1968 it is possible to pass on the additional 3% VAT to your customer, even if the contract does not provide this possibility. Of course, such measures might not be desirable from a commercial point of view.
The tax plans presented by the incoming government do not provide detailed guidance as to the exact legislative implementation. The increase of the reduced VAT rate has to be translated into a proposal and has to be submitted to the Parliament before it enters into force in 2019. No further details are available at this moment. We will keep you updated.