Reclaiming VAT: how does it work?

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As a business owner, if you’re registered for VAT, you need to charge your customers VAT and state this clearly on the invoices you send them. You collect these VAT amounts from your customers, but they’re not yours to keep – you need to pay them to the tax authorities at fixed times during the year. However, you can deduct any VAT you’ve paid on your own business purchases from the amount you owe to the State.

Read on to find out how and when you can reclaim VAT. 

Reclaiming VAT

Invoicing and receiving VAT and repaying it to the State requires a fair amount of admin. But all this work also has a positive side. Are you a VAT-registered business owner? Then you can reclaim the VAT you pay on your business purchases.  

In other words, you can deduct the amount of VAT you’ve paid from the amount of VAT you owe to the tax authorities. This makes the computer you bought or the training you signed up for a little bit cheaper. 

Subject to VAT or not? 

Is your annual turnover less than €25,000? If so, you can apply for VAT exemption. In this case, you don't charge your customers VAT and therefore have no VAT to repay to the tax authorities.

The downside is that you can't reclaim VAT on your purchases. VAT exemption is subject to various conditions. 

Can I reclaim the full VAT amount?

An important condition for reclaiming VAT is that your purchase falls under the category of business expenses. This means that you need the product or service in order to carry out your professional activity. Examples of business expenses include: 

• a laptop; 
• office supplies such as ink cartridges, paper and pens; 
• books and magazines related to your field; 
• training to improve your productivity. 

The book of bedtime stories you buy to read to your children is not a business expense. 

A valid purchase invoice

Another important condition for being able to reclaim VAT is having a valid purchase invoice. In terms of validity, the same requirements apply to both purchase invoices and sales invoices: the purchase invoice must include your VAT number and the applicable VAT rate. If it doesn't, the invoice is not legally valid and you can’t reclaim the VAT. 

Limitations on tax deductibility 

There are also some legal restrictions to keep in mind, depending on the nature of the purchase. Sometimes VAT is not deductible at all or only deductible up to a fixed percentage – even if it’s a business expense. Here are some examples of limited VAT deductibility:  

• VAT on passenger cars is deductible up to 50%. If the car is for both professional and private use, you first need to determine the percentage of business use. You can then reclaim 50% of the VAT on this part. 
• VAT on restaurant expenses is not deductible. 

What about VAT on purchases made abroad? 

Purchases in an EU country 

If you purchase goods or services in another EU country, VAT is usually reverse charged. This means that the seller doesn't charge you VAT. However, you’re still required to declare and pay the VAT amount. You can then deduct this VAT from your own VAT return, so the transaction almost always cancels itself out.  

Purchases outside the EU

Even if you purchase goods or services outside the EU, you can usually reclaim the VAT. This needs to be handled directly with the country in which you purchased the product or service. 

How to reclaim VAT?

To reclaim VAT, you need to submit a claim to Intervat along with your periodic VAT return. This declaration indicates the amount of VAT you’re paying from sales invoices and the amount of VAT you’re reclaiming from business purchases. If the amount of VAT to be reclaimed is higher than the amount of VAT owed, the VAT authorities will pay you the difference.  

VAT refunds as of €50

The VAT authorities will only process a VAT refund if the amount exceeds the minimum threshold of €50.

Keep an accurate overview with Accountable

In Accountable, you can easily record invoices and receipts to track your expenses. Our app also ensures your invoices comply with legal requirements and automatically prepares your VAT return. All you have to do is submit it!

Try Accountable now

Author - Valesca Wilms

As content marketing lead at Accountable Belgium, Valesca writes about freelancing, self-employment, and taxes based on her own experience as a freelancer.

Who is Valesca ?