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The Netherlands increases VAT rate from 19% to 21% per 1 October 2012

Monday, 8 Oct 2012

AB Consult News Alert - August 2012

The Netherlands increases VAT rate from 19% to 21% 

per 1 October 2012



When will the VAT rate increase?

The increase of the Dutch VAT rate from 19% to 21% will take place on 1 October 2012


How does this VAT rate increase effect your business?

In summary, if your company supplies goods and/or services which you are currently charge 19% Dutch VAT to your customers, you will need to change the VAT charge into 21% as per 1 October 2012


How does the VAT increase effect your net margin?

In case you are supplying goods/services to your customers and you cannot pass the VAT increase of 2% to your customers, your net margin will be reduced by 2%!


We strongly advise you to review your current (long term) contracts with your customers (if any) to ensure that you are capable to pass the 2% VAT increase to your customers. Especially to your business customers, it is generally accepted in the Netherlands that they will bear the (increase of) VAT charges, as these customers can recover their VAT paid to you.


In case you are supplying goods/services directly to end users (for example private individuals), passing the 2% VAT increase to your customers will also mean that the cost price of your products to your customers will increase with 2%. You should consider your price setting from a commercial point of view.


In case you purchase goods and services with Dutch VAT, your costs may increase with 2% if you cannot recover the VAT charged. It is important for your A/P (account payable) staff to have a good understanding of the transitional rules on the VAT increase. If they approve a purchase invoice from the supplier which is not correct, the tax authorities may deny the VAT credit and your net margin will be in danger.


Can you apply certain tax planning to take advantage of the VAT increase?

Yes, you can. If your customers are willing to buy products/services from you in advance, thus before 1 October 2012, you can charge 19% VAT instead of 21%.


What are the practical rules for invoicing during the transitional period?

Many practical transitional questions will arise such as:

  • which VAT rate (19% or 21%) do you need to apply if you issue invoices before October 1, 2012 but the goods/services are delivered after October 1, 2012?


You can issue the invoice against 19% VAT before October 1 and then after October 1, issue an additional invoice to charge the additional 2% VAT or


You can issue an invoice before October 1 with 21% VAT already. No further action is required as from October 1.


  • Which VAT rate (19% or 21%) do you need to apply if you supply the goods/services before October 1, 2012 but your invoice is issued on or after October 1, 2012?


You need to invoice 19% as from October 1 for this supply. This means that your IT/ERP system should have this option/tax codes even after October 1, 2012.


  • How do you need to credit your invoices if the original invoices are issued before October 1, 2012 but the crediting happens after October 1, 2012?


You need to credit against 19% VAT in conform with the original invoice issued.


  • When can you consider the supply to be made under the transitional VAT rules?


As a rule of thumb, a supply is generally made when the ownership of the goods you supply would pass to the customers.


For services, as a rule of thumb the supply takes place when the service you carried out takes place. For ongoing/continuing services however (such as a subscription fees), you need to split the period before October 1 and the period as from October 1, and apply the VAT rate accordingly. This means that if you have a subscription contract for the whole calendar year of 2012, 9/12 of the fees is subject to 19% VAT and 3 months is subject to 21% VAT.


  • And many more practical questions.....


                AB Consult will soon issue its updated VAT increase News Alert (to be expected beginning of September)with a       complete set of Q&A (questions and answers) on different practical queries in respect of  the VAT increase. We                welcome you contact one of our AB consultant for further information.


How does the VAT increase impact your ERP/accounting system?

If you are using an ERP/IT accounting system to issue your invoices, it is necessary to adjust your ERP/accounting system (NL tax code for 19% to 21% VAT) to ensure that the VAT increase is properly adjusted.


If your ERP/Accounting system is also used to automatically prepare the Dutch VAT returns or to provide the information for the VAT reporting, it is necessary that you will also adjust other tax codes settings, such as intra community acquisitions code, the VAT reverse charge codes, etc to ensure that the reporting is correctly adapted to the new VAT rate changes.


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