On October 1, 2012, the general VAT rate will increase from 19% to 21%. This increase is one of the measures included in the Act on the Implementation of Tax Measures Budget Agreement 2013. In summary, the increase will mean that:
· the supply of a good or a service rendered before October 1, 2012, will continue to be taxed at the 19% VAT rate. It is irrelevant whether the VAT may only become due on or after October 1, 2012;
· the supply of a good or a service rendered on or after October 1, 2012, will be taxed at the 21% VAT rate. This also applies if advance payments were made on the basis of a 19% VAT rate. In that case, as of October 1, 2012, an additional 2% VAT will be owed. With regard to advance payments made before October 1, 2012, in respect of services provided after October 1, 2012, it is permissible to already apply the 21% VAT rate to these payments;
· if the VAT liability at the 19% VAT rate arose before October 1, 2012, but relates to services that fall under the new 21% rate, then a business will be entitled to charge the additional VAT owed to the customer, for example, in the case of advance payments or contracts already concluded for which the contracted prices assumed a 19% VAT rate.
Points to consider regarding the VAT rate increase and the transitional rules are discussed below.
Charging the additional VAT owed
A business is entitled to pass on the additional VAT to its customers, if a contract has been concluded in which the 19% VAT was applied to the contracted price, although the supply of goods or services fall, in full or in part, under the 21% VAT rate. The customer’s status is thereby irrelevant. Any clause that conflicts with the above will be invalid.
However, from a commercial perspective, a business may prefer to forgo charging the VAT rate increase to its customers. In this case, the business must nevertheless report the VAT owed on installments with payment deadlines after September 30, 2012, or on that part of the payment relating to services performed on or after October 1, 2012, at the 21% VAT rate. Any invoices issued must apply the 21% VAT rate insofar as it relates to the supply of goods or services on or after October 1, 2012.
Examples of continuous services are rentals, the granting of licenses, the contracting out of staff, continuous advisory services carried out for permanent clients, telecommunications or the supply of gas, water, and electricity. If it is standard practice to invoice these services at the end of a specified period, then it can be assumed that the invoice relates to services provided during that period. With regard to customers not entitled to a full or partial VAT deduction, it may be advisable to, in any case, prepare a final invoice as at September 30, 2012, at the 19% VAT rate. The invoice or final invoice must state that it relates to services performed in a specified period before October 1, 2012.
If a final invoice relates to services performed before and after the date of the VAT rate increase, the services can be listed separately on the invoice. The 19% VAT rate will apply to services relating to the period before October 1, 2012, and the services performed on or after October 1, 2012, can be invoiced (on the same invoice) at the 21% VAT rate.
With regard to continuous cross-border services performed in 2012, the VAT on these services will be owed on December 31, 2012, at the latest. The invoice for continuous services can also be split. The 19% VAT rate will apply to the period until October 1, 2012, and the 21% VAT rate to the last three months of 2012.
The provision of services that require some time
Numerous services cannot be provided within a short period, for example one day, but require more time. Examples of such services are advisory services, software development, repairs, mediation services, courses, or training. If it is not standard practice to invoice these services within a set period, but rather on completion of the services, then these services must, in principle, be taxed at the 21% VAT rate if they are completed on or after October 1, 2012.
Reverse-charged VAT on services provided by foreign service providers, ‘acquisition VAT’ in respect of goods purchased from other EU countries, and ‘import VAT’ in respect of goods imported to the Netherlands, must be reported at the new 21% VAT rate if they are performed on or after October 1, 2012. The new VAT rate must also be taken into account when determining the size of the bank guarantee to be issued in the context of tax representation.
Reverse-charged VAT for sub-contracted work
The rules on reverse-charged VAT are, subject to conditions, applicable in those situations where a business or self-constructor (eigenbouwer) contracts a sub-contractor to carry out work of a substantive nature in respect of real estate, shipbuilding, and ready-to-wear clothing. In such cases, the VAT is reverse charged from the sub-contractor to the general contractor/self-constructor. The general contractor/self-constructor must report the VAT owed at the 21% rate in their own VAT returns, to the extent that the supplies or services were carried out on or after October 1, 2012. Different rules apply to the transfer/completion of real estate (see below).
With regard to the hiring of staff, for example, carpenters, bricklayers, plasterers, welders, excavators, etc., in the abovementioned sectors, the hirer must also report the reverse-charged VAT in its VAT return. If the staff are hired on or after October 1, 2012, then the reverse-charged VAT must be reported at the 21% rate.
Private use of goods and services
Business assets used by an entrepreneur or a business’ staff for private purposes is subject to VAT as this is regarded as a deemed service. As of October 1, 2012, the VAT rate for such services will be 21%, even if on purchase of the business assets the 19% VAT owed was deducted. A fixed levy of 2.7% of the catalog price (including VAT and private motor vehicle and motorcycle tax; belasting van personenauto’s en motorrijwielen, “BPM”) currently applies to company cars. It is expected that this fixed percentage will be adjusted upward.
The transfer of real estate
Specific transitional rules apply to real estate. They include a measure for sale agreements and building contracts concluded before October 1, 2012, in respect of real estate that has not yet been transferred/completed before this date and for which payment is made in installments. The installments with payment deadlines before October 1, 2012, are subject to 19% VAT. Installments with payment deadlines after that date are subject to 21% VAT. This concerns all situations that, for VAT purposes, involve the transfer of real estate:
· the transfer of the full or beneficial ownership of real estate;
· the establishment of a limited right (such as a ground lease right or a right of superficies), whereby the payment is at least equal to the value of the real estate;
· the completion of new real estate by the builder.
Although the installments do not always have to correspond to a specific part of the work to which the agreement relates, the absence of any correlation between the installments and the work in progress is not advisable. The tax inspector may then argue that the 21% VAT rate is applicable to the installments, or some of the installments, whose payment deadline is before October 1, 2012.
To alleviate somewhat the negative effects of the VAT increase, the government has introduced a different rule for new homes that, based on an agreement concluded before April 28, 2012, are completed on or after October 1, 2012. The rule allows the old 19% VAT rate to apply to all installments with payment deadlines before October 1, 2013.
Completion of a work under construction
If the payment for the completion of a work under construction takes place in installments based on an agreement concluded before October 1, 2012, the installments with a payment deadline before October 1, 2012, are subject to the 19% VAT rate. Installments with deadlines after that date will be subject to 21% VAT. This concerns work on real estate that does not result in the transfer or completion of new real estate, for example, renovations, paintwork or other maintenance. As previously mentioned, this specific rule only applies if payment has to occur in installments pursuant to an agreement concluded before October 1, 2012.
Internal transfer of real estate
Businesses not entitled to a full or partial VAT deduction, may be faced with internal transfers, i.e. self-supply rules. Under the self-supply rules, a deemed transfer takes place if a business develops new real estate itself and subsequently uses it in full, or partially, for activities for which there is no VAT deduction. The business must pay VAT on the development costs when the real estate is taken into use. If the real estate is developed pursuant to an agreement concluded before October 1, 2012, the 19% VAT rate will apply to the following aspects of the internal transfer:
· the installments that contractually expired before the date of the VAT increase;
· the value of the land, any buildings in shell form already present on the land, and all other materials the business, as owner of the materials, made available to the contractor before October 1, 2012.
The performing arts, art objects, and solar panels
The increased VAT rate for the performing arts and art objects will be reversed as at January 1, 2013. However, the Deputy Minister of Finance has given approval for the reduced rate to be applied from July 1, 2012. He has also given approval for the reduced rate to be applied to advance payments made from May 25, 2012, onward in respect of performing arts that take place on or after July 1, 2012.
At present, it is unclear whether solar panels fall under the reduced VAT rate. Under current legislation, the lower VAT rate cannot now, or retroactively, be applied to solar panels.