VAT rate to increase in October

After the Dutch government fell this past April, the current five party coalition in Parliament agreed to a set of austerity measures in order to meet the EU requirement that Member States have a deficit below 3% of GDP.

One of the key changes is that the general value added tax (VAT, or belasting toegevoegde waarde (BTW) in Dutch) rate will be increased from 19% to 21% starting on October 1, 2012. The reduced VAT rate of 6% will stay the same.

Increasing the VAT rate is a straightforward way to generate more income - in fact, the change is projected to create additional tax revenue of 4 billion euros as early as 2013. However, increasing it will also reduce the spending power of Dutch households.

If you own a business, the increased VAT rate will of course have consequences for your administration. If services are provided or goods are delivered before October 1, the current VAT rate is applicable (even if the invoice is sent after October 1).

With continuous services, a split will need to be made for services provided after September 30.

For the part of the services that takes place after September 30 an additional invoice applying the 21% VAT rate will need to be submitted.

For services which are invoiced by an annual bill, the following may be applied. An entrepreneur sending out an annual invoice for 2013 can choose to have included in this invoice the additional tax due on the last quarter of 2012. On the invoice this must be mentioned as "na gefactureerde BTW 2012." If the entrepreneur decides to do so, he must pay the additional VAT due over the period October 2012.

To find out more about VAT in the Netherlands, check out the Dutch tax administration page on the topic here.