Below is an outline of the Dutch Value Added Tax (VAT) system. For insight regarding various Dutch VAT facilities, we refer to the Dutch VAT regime section.
VAT is an (EU directed) indirect tax that is charged on the supply of goods and services. An entrepreneur or business that makes supplies that are subject to VAT should be VAT registered and VAT should be accounted for at the appropriate rate. VAT registered taxable persons are entitled to recover VAT incurred on the purchase of goods and services in connection with taxable transactions. In this manner, the VAT cost is ultimately borne by customers such as private individuals or entrepreneurs and businesses making VAT exempt supplies (such as certain financial services providers) that have no right to recover VAT.
VAT may be charged at either the standard rate which is currently 21% or the reduced rates of 6% for certain goods and services and 0% for intra-Community supplies and export.
Under certain conditions VAT grouping is possible. In order to apply for VAT grouping, the taxable persons should be established in the Netherlands and be closely bound to each other by organisational, financial and economic links.
The place of supply should be determined if goods or services are supplied between different countries . That way the country that will levy the VAT can be determined.
A taxable person established abroad and without a permanent establishment for VAT purposes in the Netherlands can perform a taxable supply of goods or services to a taxable person or non-taxable legal entity established in the Netherlands. In such case, the VAT must be accounted for by that Dutch taxable person or non-taxable legal entity, which is called the “reverse charge mechanism”.
VAT may not be recovered in respect of expenses for food and drinks in a restaurant, hotel or café and in respect of expenses that are not used for business purposes. Furthermore the VAT incurred on business entertainment and certain supplies and/or services for private use to personnel cannot be recovered in excess of € 227 per person per year.
Depending on the height of the VAT due taxable persons are required to submit monthly or quarterly VAT returns. In exceptional situations a filing term of 1 year is possible as well. The Dutch tax authorities have a regularisation period of 5 years, starting at the time when the liability to pay VAT arises.