VAT exemption scheme for small businesses: when and for whom

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You've probably heard about the VAT exemption scheme for small businesses, but what exactly does that mean? And who is not subject to VAT? Find out here if you qualify, what the pros and cons are, and how best to proceed.

What is the VAT exemption scheme?

VAT exemption means that as a self-employed person, in some cases you can choose not to charge value-added tax, i.e. VAT, to your customers and therefore do not have to pass on the VAT to the state. However, you still have to pay VAT on your purchases, as it’s not possible to be exempt from this requirement.

In principle, you can apply for a VAT exemption whether you’re self-employed in a primary or secondary occupation. But in reality, it depends on your profession and annual income.

VAT is separate from your income taxes, which you must pay in any case.

Who is exempt from VAT in Belgium?

As a small business with an annual turnover of less than €25,000 (excluding VAT), you qualify for the VAT exemption scheme for small businesses.

You can also be exempt from VAT due to the nature of your profession, for example, if you practice a liberal profession such as being a doctor or dentist.

Anyone earning more than €25,000 per year is automatically subject to VAT. If you want to become self-employed in a secondary occupation, there's a good chance you can apply for the exemption anyway. However, this doesn't automatically mean you should. Below you'll discover the pros and cons.

Pros and cons of VAT exemption

There are advantages and disadvantages to being exempt from VAT. Depending on your activity and status, it's best to weigh everything up before making your decision.

Advantage: less administrative work

If you are exempt from VAT, your administrative burden is reduced as you no longer need to:

• include VAT on your invoices to customers
• submit a VAT return every quarter
• pay VAT every quarter
  

If applicable to your activity, you still need to submit a customer listing and intra-community listing every year. In short, the VAT exemption scheme gives you a bit more freedom, but not from everything.

All your invoices must also include the statement: "Small business subject to the VAT exemption scheme. VAT not applicable."

💡 Accountable tip: if you create your invoices in Accountable, the mandatory legal mentions are automatically included on all the invoices you send.

Advantage: competitive advantage

If you have private customers or professional customers who cannot reclaim VAT, you are much cheaper for them than competitors who charge VAT!

The VAT exemption scheme can therefore, in some cases, help you attract more customers.

⚠️ Note: this doesn't mean you're obliged to raise your price when you eventually become subject to VAT. You’re always free to set your own price.

Disadvantage: fewer tax deduction opportunities

Those subject to VAT need to meet all the requirements mentioned above but they also enjoy one significant advantage: they can reclaim (part of) the VAT on their professional expenses.

Every quarter (or every month), they pay the state the VAT they invoiced to their customers minus the VAT they reclaim on their purchases. You miss out on this significant advantage if you’re exempt from VAT.

When to opt for VAT exemption?

You are free to make the choice that best suits your business. Ask yourself these questions before making a final decision:

• Would you rather remain affordable for your private customers and stay VAT exempt, at least initially? 
• Or do you want to deduct as much VAT as possible from your purchases?

What if my annual turnover increases?

If your business is doing very well, there's a chance your annual turnover will rise above €25,000. Congratulations! However, this means that from then on, you are officially subject to VAT.

Suppose you exceed the €25,000 turnover in June. From the first euro above €25,000, you are no longer exempt from VAT. From then on, you must comply with VAT obligations, including submitting a VAT return and paying VAT.

💡 You must immediately report the change in your turnover to the VAT office!

What happens if I become subject to VAT?

The administrative burden associated with VAT doesn't have to be a stumbling block. At Accountable, we do everything we can to minimise the administrative burden.

• The Accountable app automatically prepares your VAT return for you. All you need to do is upload it to Intervat.
• You get step-by-step guidance throughout the entire process. So, the administrative aspect alone is no reason to apply for an exemption if it doesn't seem like the best option for you.

Would you like to closely monitor your earnings? Download Accountable and always have an up-to-date view of your income. That way, you can see immediately when you’re getting close to €25,000.

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 ?