If you are just starting a business in the Netherlands, you will probably have come across the concept of VAT (Value Added Tax), or as it is known here, BTW (belasting toegevoegde waarde). It is an important part of running a business, and understanding how BTW works will help you avoid mistakes and keep your books correctly.
What is VAT?
VAT is a tax that you add to the price of your goods or services when you sell them to your customers. You collect this tax for the state and then pass it on to the tax office (Belastingdienst) through regular reports.
Basic VAT rates
- 21% is the standard rate for most goods and services,
- 9% - reduced rate for food, medicine, books and some other goods,
- 0% - used mainly for international transactions (export).
When should VAT be charged?
You charge VAT when you sell goods or provide services. For example, if you provide a service for 100 euros and it is subject to a VAT rate of 21%, you add 21 euros on top. The customer ends up paying 121 euros, of which 21 euros is VAT that you must remit to the tax office.
What is VAT deduction?
When you buy goods or services for your business (for example, equipment, supplies, rent), you also pay VAT to suppliers. This VAT is called input VAT. It is important to know that you can deduct this VAT from the amount of VAT that you have charged on your sales and that you must transfer to the tax office. This means that if you paid VAT on the purchase of goods for your business, then this amount can be deducted from the VAT that you reflected on your sales.
How to calculate the amount to be paid for VAT?
During a tax period (month, quarter or year), you receive VAT from customers/buyers, which is indicated in your sales invoices, and at the same time you pay VAT to suppliers for goods and services for your business, which is indicated in the purchase documents you receive from them. To understand how much you need to pay to the tax office, do some simple calculations:
- Calculate VAT received from customers (output VAT),
- Calculate the VAT you paid to suppliers (input VAT),
- From the amount of VAT received, subtract the amount of VAT paid to suppliers.
Example:
- You provided services for 10 euros with VAT (at a rate of 000%) - this means that you received 21 euros in VAT.
- You purchased materials to provide these services and paid your suppliers 500 euros VAT.
- Now let's calculate: 2100 euros (VAT received from customers) - 500 euros (VAT paid to suppliers) = 1600 euros to be paid to the tax office.
The result?
If you received more VAT than you paid, you must pay the difference to the tax office. If you paid more VAT than you received from customers (for example, at the initial stages of business, when expenses may be higher than income), the tax office will return the difference to you.
Of course, this explanation is greatly simplified, but you can understand the general principle. There are many nuances in working with VAT, and it can be difficult to understand all the deduction rules.
If you have any specific questions, it is better to contact consultation, and if you need specialists to do this, you can order subscription accounting services.
Publication date: 10.10.2024/XNUMX/XNUMX