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As from 1 January 2020, accelerated VAT refund possible for start-ups

Tuesday 24/09/2019
Teruggaaf Starters

A VAT credit shown in the VAT return can generally only be reclaimed at the end of a quarter, even if you file monthly returns. However, by means of a special permit, you can apply for a monthly reimbursement of VAT credits.  As such, the taxpayer wins twice, not only can you apply for a reimbursement more quickly, but under this system, the administration also pays back a month sooner.           

This authorisation is only granted if certain conditions are met. Given that start-ups find it difficult to meet these conditions, while they are the ones who could use this 'helping hand for cash flow' due to the large investments they need to make, the existing monthly reimbursement arrangement will be extended to start-ups as of 1 January 2020.

Current system - monthly reimbursement permit subject to conditions

Under the current reimbursement system, the reimbursement of a VAT credit can be claimed in the quarterly VAT return or in the monthly VAT return pertaining to the last month of the quarter (for monthly returns), as long as the VAT credit is at least €615 or €1,485 respectively. The actual reimbursement is then made 'no later than the third month following the period to which the quarterly return or the last return of the last month of this quarter pertains'. As such, in practice, it may be the case that the VAT paid for which there is a right of deduction has to be paid in advance for a maximum period of six months. For example, you can only claim reimbursement of a VAT credit accrued during the month of July in the 3rd quarter return in September, and this amount will only actually be reimbursed at the end of December. Talking of paying VAT in advance..

In order to get the VAT credit reimbursed more quickly, taxpayers who make a monthly return can apply for the so-called 'permit for monthly reimbursement'. You can apply for this permit from your local VAT inspection office by submitting a reasoned application in which you demonstrate that the conditions have been met. During the previous calendar year, the taxpayer must have had a VAT credit in their favour of at least €12,000 and which during the same period, at least 30% of their turnover consisted of:

  1. A number of exempt supplies of goods and services in the international context (such as exempt intra-Community supplies, exports of goods and related services, etc.);
  2. Transactions for which a reverse charge mechanism is envisaged (such as construction work);
  3. Transactions in the construction sector to which the reduced VAT rate of 6% applies;
  4. Transactions that take place abroad to the extent that the VAT credit arises from the pre-payment of the VAT levied on these goods and services (e.g.: services to foreign customers that are subject to the general B2B reverse charge mechanism).

The VAT credit is then reimbursed within two months following the period pertaining to the monthly return for which the reimbursement was applied for.

In practice, the period in which you have to pay the deductible tax in advance is reduced from a maximum of 6 months to a maximum of 3 months. In this way, a permit for monthly reimbursement results in a significant cash flow advantage for the taxpayers who are regularly in a position to have their VAT reimbursed.

Bear in mind that companies that do not yet meet the conditions based on the figures of the previous calendar year can apply for the permit based on their forecasts (e.g. in the event of a change of activity).

Extension of the monthly reimbursement to start-ups

Start-ups may also find themselves in a position to have their VAT reimbursed owing to the (often substantial) investments and expenditure they have incurred in starting up their activity, even if they do not specifically generate the turnover referred to in point 1. To address the difficult liquidity situation of many start-ups, the government has extended the monthly reimbursement system to start-ups through an amendment to Royal Decree No 4.

From 1 January 2020, start-up companies will also be able to apply for a monthly reimbursement of their VAT credit during the first 24 months following the start of their economic activity. This regulation applies in principle to all start-ups and is not sector-specific. It does, however, require the start-up company to file periodical monthly returns, electronically. In addition, all VAT returns must always be filed in good time in order to benefit from the system. Finally, the VAT credit must be at least €245 per month.

It is worth noting that the application of the scheme does not have to be requested from the competent VAT inspection office, but can be applied automatically when the above conditions are met. In principle, the VAT credit will then be reimbursed within two months after the period to which the tax return relates.

This preferential arrangement for start-ups can only be applied by start-ups that file monthly declarations. So although a start-up which files its return quarterly cannot make use of this system, the VAT administration undertakes, to the extent possible, to also pay the VAT credit no later than the second month following the return period.

Conclusion

The extension of the monthly reimbursement system will therefore allow start-ups to obtain faster reimbursement of the VAT they have paid on investments and expenses incurred during incorporation. However, it may also be interesting for companies who aren't start-ups to check whether they meet the conditions to apply for a permit for monthly reimbursement, thereby benefiting from the cash flow advantage.

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Aurelie Van Oosterwyck
Aurelie Van Oosterwyck
Manager Tax & Legal Services
Bert Derez
Bert Derez
Partner Tax & Legal Services