All about VAT and international business

In sales and purchases you have to deal with VAT. The same goes for import and export. VAT (Value Added Tax, btw) is the tax you have to pay on your turnover. Different VAT rules may apply, depending on whether you do business with parties within or outside the EU. Other factors that determine the VAT rules are what you provide: goods or services, and whether your customer is an entrepreneur or a private person.

In this article, you can read how to apply the VAT rules if you do business internationally. VAT terminology often encountered when doing business abroad is also explained, including the one-stop-shop system OSS, ICP, and VIES.

• Btw-identification number
• KOR
• Exporting goods
• Importing goods
• Providing services abroad
• ICP declaration
• ABC supply chain transactions
• Claiming a VAT refund
• Deliveries to private cosumers
• VIES website

Btw-identification number

Each company gets a VAT identification number from the Dutch Tax and Customs Administration. It is a unique number that belongs to your company. You use this ‘VAT ID’ for transactions with customers and suppliers in the Netherlands and other EU countries. You state this number on your invoices. If you sell products online, clearly state your VAT ID on your website. That way, customers can be sure that they are dealing with a company, not a private person.

Small businesses scheme (KOR)

If you use the small businesses scheme ('Kleineondernemersregeling', KOR), you are exempt from paying VAT. You do not charge VAT on your goods or services. Nor may you deduct the VAT on expenses as input tax. Also, you do not have to file a VAT return, and you only have to keep simple VAT records.

The KOR is a scheme set up by the Dutch Tax and Customs Administration. If you buy products abroad, you receive an invoice with 0% VAT. In that case, you must pay the Dutch VAT on this purchase, also if you make use of the KOR. Because you would normally not file a VAT return when using KOR, it is your responsibility to file the VAT return and pay the VAT in this situation. You do this through an incidental VAT return. You also must file a VAT return if you have customers abroad, or have foreign transactions where the VAT has been reverse-charged to you. In that case, consider if taking part in the KOR is financially beneficial in your situation.

Exporting goods

When exporting goods to customers within or outside the EU, you need to know if your customer is an entrepreneur. Meaning, do they have a VAT identification number? You are not allowed to charge Dutch VAT to every foreign customer. In some situations, you need to file a VAT return in the EU country of your customer.

Deliveries to EU countries

The following example demonstrates how to apply the VAT rules when you are delivering goods within the EU.

Example:

The Dutch company X develops, produces, and supplies products for soil and water research worldwide. X delivers a shipment of soil drills to an Italian customer. A transportation company transports the shipment.

On their invoice for this delivery of goods (in Dutch), company X states ‘0% VAT’. Their customer declares the VAT in Italy. On the invoice, X also includes their VAT identification number, and that of their customer. Because the company invoices with 0% VAT, there are additional invoicing requirements with which they must comply. X must include a statement in their invoice demonstrating that the shipment is an intra-Community supply, meaning a delivery within the EU.

They include the wording ‘tabel II, onderdeel a, post 6, Wet OB 1968’ (Table II(a), item 6, Turnover Tax Act 1968), or ‘artikel 138, lid 1, Richtlijn 2006/112’ (Article 138(1), Directive 2006/112). Company X decides which of the 2 statements they use. Before doing so, X should check the VAT ID of their Italian customer. This way, they will know for sure that the number is correct, and that they are actually doing business with an entrepreneur.

The 0% VAT charge must be included in the VAT return of company X. In their VAT return, company X enters the amount of turnover to their Italian customer under ‘rubriek 3b; leveringen naar of diensten in landen binnen de EU’ (Question 3b; Supplies to or services in EU countries). Company X performs an intra-Community supply (‘intracommunautaire levering’, ICS) which is why they also must declare the supply in their ICP declaration.

There are exceptions(in Dutch) to the 0% VAT rule for specific goods and in special circumstances, for example, when your customer is not an entrepreneur. If you are not sure, use the ‘Supplying goods to a foreign country’ tool (in Dutch) of the Tax Administration.

Intended change in VAT rules

The European Commission (EC) believes that the current VAT system of business-to-business supplies to entrepreneurs in other Member States is susceptible to fraud, which is why they suggest a drastic change. In the reformed VAT system, you will charge the VAT in the EU country of your customer. Next you file your online tax return with the Dutch Tax and Customs Administration using the One-Stop-Shop scheme, also called OSS (‘éénloketsysteem’), and you pay the VAT due in the other Member State. We call this an intra-Union supply.

If your customer is considered a Certified Taxable Person (CTP), you do not have to specify VAT on your invoice. Only businesses that meet certain reliability requirements will get a CTP status. It is not yet known what these requirements will be. All Member States must agree to the change proposed by the EC. It is not clear when these new rules will come into effect.

Deliveries to non-EU countries

The following example demonstrates how to apply the VAT rules when you are supplying goods to a country outside the EU.

Example:

Company X has a customer in China. On their invoices to this customer, company X charges 0% VAT. In case of a tax audit, X should use their records to prove that the goods they delivered have left the EU. They can use, for example, an export document from customs, transport documents, and proof of payment. The company files the turnover of this and other deliveries to countries outside the EU in their tax return under ‘rubriek 3b; leveringen naar of diensten in landen binnen de EU, uitvoer’ (Question 3a; Supplies to non-EU countries, export).

For exports it makes no difference whether your customer is a company or a private person, For a private person living outside the EU who collects the goods at your business and transports them in their personal luggage to their own country special rules apply (in Dutch).

When in doubt, use the ‘Supplying goods to another country’ tool (in Dutch) of the Tax and Customs Administration. Then you will know which countries will tax your delivery, and what you need to do regarding VAT.

Collection transactions

Sometimes, foreign customers have a shipment picked up. In that case, you also need evidence to prove that these goods have left the Netherlands. So, always have your client sign a transport declaration (in Dutch) as proof. With this declaration and your records regarding the supply in question, you can demonstrate that the goods have been delivered to a customer in another country.

If you are not able to demonstrate upon inspection that your shipment has left the Netherlands, the Tax and Customs Administration will impose an additional assessment and you must pay the VAT due. You may also get a penalty. Only supply goods with the 0% rate to, for example, regular customers who you trust and who have picked up shipments without any problems before. When in doubt, charge the Dutch VAT. In that case, your customer abroad can reclaim the paid VAT (in Dutch) through the Dutch Tax and Customs Administration.

Importing goods

When you buy goods from a foreign supplier, you generally receive an invoice with 0% VAT. In that case, you have to calculate the VAT yourself, and declare this in your VAT return.

Purchasing within the EU

The following example demonstrates how to apply the VAT rules when you are purchasing goods from countries within the EU.

Example

Company X buys measuring equipment for groundwater monitoring in Germany. X has a Dutch VAT identification number and the German supplier manages transport to the Netherlands. X receives an invoice with 0% VAT from Germany. With this purchase, X performs an intra-Community acquisition (ICA).

In the Netherlands, the measuring equipment is subject to Dutch VAT. Company X declares VAT under ‘rubriek 4b; leveringen/diensten uit landen binnen de EU’ (Question 4b Supplies/services from EU countries). In their tax return, X declares under ‘omzet’ (turnover) the purchase amount stated on the invoice. X calculates the turnover tax of 9% or 21% over this amount and enters this under ‘omzetbelasting’ (turnover tax). Then X enters the VAT amounts under Question 4b in ‘rubriek 5b; voorbelasting’ (question 5b; input tax). This means that, on balance, X does not pay any VAT on their purchase.

In some situations, other VAT rules apply. Therefore, you should always use the tool ‘Intra-Community acquisitions’ (in Dutch) of the Dutch Tax and Customs Administration.

Buying from non-EU countries

Company X buys observation wells in Japan. The import of the observation wells is taxed in the country where the shipment enters the EU. The moment X files an import declaration with Customs, they receive an invoice from Japan with no VAT. Generally, Customs calculates VAT on import on the customs value. This includes:

• the purchase price of the goods; plus
• the incidental expenses up to the place of destination within the EU (commission, packaging, transport, and insurance); plus
• the taxes (excluding VAT) and import levies, for example, the import duties on the goods.

The company has all goods enter the Netherlands and pays VAT immediately on import. X is entitled to VAT deduction and enters the VAT they paid in their VAT return under ‘rubriek 5b; voorbelasting in de btw-aangifte’ (question 5b; input tax). On balance, the company does not pay VAT on this purchase, but it has to pay it first to get it back later. It is similar to your purchases in the Netherlands (in Dutch).

Article 23 permit

X imports products on a regular basis. The amount of VAT they have paid is increasing, and affects the liquid assets of the company. This is the money held in the bank account. So X applies for an Article 23 permit (in Dutch) with the Dutch Tax and Customs Administration. With this permit, the company can reverse-charge the VAT in their VAT return and immediately deduct it as input tax. This is called the reverse-charge arrangement ('verleggingsregeling'). So, the company files the import declaration with Customs, but does not pay the VAT at that moment. X calculates the VAT on the purchase value themselves and declares this amount under ‘rubriek 4a; leveringen/diensten uit landen buiten de EU’ (question 4a; supplies/services from non-EU countries). X deducts the calculated VAT as input tax under 5b. On balance, they do not pay anything.

Providing services abroad

If you provide services to foreign companies, you are usually allowed to transfer VAT to your customers. They usually then charge your customers the local VAT themselves and pay it in their own country. When providing services to foreign consumers or organisations without a VAT ID, it does not matter whether your customers are located in another EU country or outside the EU.

Reverse-charging VAT

In the reverse-charge arrangement, the supplier transfers the VAT to the customer. For services provided, you send customers in other EU countries an invoice without VAT. Your customers pay the VAT in their own country. Or you receive an invoice from an EU service provider with the text 'VAT reverse-charged'. Then you are responsible for declaring the VAT in the Netherlands.

The reverse charge of VAT and how you declare this in your VAT return are explained below with some examples.

Services to companies in other EU countries

A Dutch photographer takes pictures for a German company. In his invoice, he reverse-charges the VAT to his German customer, who subsequently files the VAT return in Germany. On the invoice, the photographer states his own VAT identification number and that of his customer. Additionally, he include on the invoice: ‘Steuerschuldnerschaft des Leistungsempfängers’. The Dutch text for the reverse charge is ‘btw verlegd’. In English it is ‘reverse charge’. Before doing so, the photographer checks the VAT ID of his German customer on the website of the European Commission. This way, he will know for sure that he is actually dealing with an entrepreneur.

In his VAT return, the photographer enters the turnover amount to his German customer under ‘rubriek 3b; leveringen naar of diensten in landen binnen de EU’ (question 3b; supplies to or services in EU countries). In this situation, the photographer performs an intra-Community supply (ICS) and should also declare the service in his ICP declaration.

For certain services there are exceptions (in Dutch). For example, transport of passengers, restaurant and catering services, or working on immovable property abroad. The Tax and Customs Administration in the other EU Member State determines whether you are allowed to reverse-charge VAT to your customer or whether you need to charge the VAT of that country. In the latter situation, you are required to register with the foreign tax authority.

Purchasing services in other EU countries

The photographer uses packaged software from a French supplier to edit his digital photos. Each month, he receives an invoice from this supplier with the statement ‘Autoliquidation de la TVA’. He has to declare the VAT on this invoice in the Netherlands. He does so under ‘rubriek 4b; levering/diensten uit landen binnen de EU’ (question 4b; supplies/services from EU countries).

He states the invoice amount under ‘omzet’ (turnover). He calculates the turnover tax (9% or 21%) on the entered amount and states this under ‘omzetbelasting’ (turnover tax). The photographer can deduct VAT paid on the goods or services he purchased professionally as input tax under 5b. This is including the amounts stated as turnover tax under 4b. On balance, he does not pay any VAT.

Services provided to companies outside the EU

Occasionally, the photographer takes pictures for a Swiss company. In that case, he provides a service to a company outside the EU and the Swiss VAT legislation applies. The photographer sends an invoice without Dutch VAT. He asks the Swiss tax authority if and how he must file a tax return. In his VAT return in the Netherlands, he does not file the services to the Swiss company. In the tool ‘Services in and from another country’ (in Dutch) you will find more information about the VAT rules.

Services provided by companies outside the EU

In busy times, the photographer employs the services of an Indian company to edit his pictures. From India he receives an invoice without VAT. In that case, the photographer is responsible for filing the VAT return in the Netherlands. He does so under ‘rubriek 4a; leveringen/diensten uit landen buiten de EU’ (question 4a; supplies/services from non-EU countries). He calculates the VAT on the invoice amount himself and deducts the VAT as input tax under 5b. On balance, he does not pay any VAT.

Offsetting VAT is only possible if you are entitled to deduct VAT. You do not include services exempt from VAT in the Netherlands, or with a 0% VAT rate (in Dutch), in your VAT tax return.

Services provided to consumers

Occasionally, the photographer takes pictures for private persons or organisations that do not have a VAT ID and charges Dutch VAT. In this situation, whether you are providing a service to a customer within or outside the EU is irrelevant. However, he should use the tool of the Tax and Customs Administration (in Dutch) to verify if there are any exceptions to this rule.

Digital services

Different rules apply for digital services such as telecommunications, broadcasting, and electronic services. These services are taxed in the country where your customer lives or is registered. Whether your customer is a private person or an entrepreneur is irrelevant. With the tool ‘Services in and from another country’ (in Dutch) of the Tax and Customs Administration you can find out in which countries the digital service is subject to VAT and what you need to do regarding VAT.

ICP declaration

You apply the 0% rate if you supply goods to entrepreneurs in another EU Member State. If you provide services, you reverse-charge the VAT to your customer (entrepreneur) in the other EU Member State. Both situations describe an intra-Community transaction of goods or services. In addition to the VAT return, you periodically file an intra-Community transactions declaration (‘intracommunautaire prestatie’, ICP). In this declaration, you list the supply of goods and services. The total amount matches the amount entered under 3b of your VAT return.

You submit the ICP declaration through the portal ‘Mijn Belastingdienst Zakelijk’ (in Dutch) under ‘overige formulieren’ (other forms).

ABC supply chain transactions

There are deliveries between 1 supplier and 1 customer, but deliveries can also take place between multiple partners. For example, an ABC supply chain transaction (‘ABC-levering’) involves at least 3 companies from different EU Member States.

Example

Entrepreneur A from the Netherlands sells water silos to company B in Belgium. Company B sells the silos on to entrepreneur C in Germany. Company B commissions A to transfer the shipment directly to C in Germany. The transport to Germany is therefore part of the supply from A to B.

An ABC supply chain transaction has 2 deliveries subject to VAT. As of 2020, the Dutch Tax and Customs Administration regards the delivery from A to B as an intra-Community delivery. There is, after all, 1 physical delivery to another EU Member State. The transport is part of that delivery. A sends an invoice with 0% VAT to B in Belgium. B must register for VAT purposes in Germany and declares his intra-Community acquisition.

The Dutch Tax and Customs Administration regards the second delivery from B to C as ‘domestic/internal delivery’ in Germany. The water silos have been delivered in Germany by A and they stay there. There is no delivery of the actual goods between B and C, in this case there is only a transaction on paper. B charges the German VAT to C and declares the turnover in their VAT return.

There is 1 exception to this general rule. If B organises the transport itself or contracts it out to a carrier and provides A with a VAT ID of the Member State of departure, A can send an invoice with Dutch VAT. In that case, the supply from A to B is considered a domestic delivery in the Netherlands. The supply from B to C is then considered intra-Community supply and can be invoiced with 0% VAT. When B provides A with a VAT ID from a Member State other than the Member State from which the goods were shipped, the general rule of an ABC transaction applies again.

To make things easier for intermediary B, the simplified ABC supply chain transaction can still be applied. With this scheme, the ABC supply chain transaction can be done without the need to register in the country of arrival of entrepreneur C (Germany). On the invoice, B states: "VAT reverse-charged". You have to comply with conditions to apply the simplified ABC rules. On the website of the Dutch Tax and Customs Administration you can read about the conditions and find more information about ABC supply chain transactions.

ABC supply chain transaction to non-EU countries

In general, you can use the 0% rate if you have a written export order from your buyer. If your delivery is part of an ABC supply chain transaction (in Dutch) to a country outside the EU, you should discuss with your financial advisor what you need to do regarding the VAT.

Claiming a VAT refund

Sometimes you pay VAT in another EU Member State. For example, when renting a car, paying for a hotel overnight stay, or purchasing goods or services when participating in a business fair in another EU country. You can reclaim VAT paid in other EU member states online with the Dutch Tax and Customs Administration. Conditions apply:

Conditions

There are 3 conditions that apply for claiming a refund of VAT:

1. Your company is established in the Netherlands.
2. You do not file VAT returns in the other EU Member State.
3. You are using the purchased goods or services for business activities subject to VAT. These activities should not be exempt from VAT. If you are filing VAT returns in the other EU Member State, you must reclaim VAT through a deduction of input tax. You cannot reclaim through the Dutch Tax and Customs Administration.

Minimum amount

At the end of a calendar year, you reclaim the VAT. The VAT amount should be higher than €50. To claim VAT refunds per three months during the calendar year, the VAT amount should be at least €400. On the website of the EU, you can find a summary of the terms and conditions per EU Member State.

Filing a VAT return

If you want to reclaim VAT from the previous year, you must do this before 1 October in the current calendar year. Applications received after this date, may not be handled by another EU country. 

In the application for reclaiming, you include your business activities. In the Netherlands, you use the standard industrial classification coding system (SBI). To reclaim VAT from another EU Member State you use the NACE code (in Dutch). These codes and more information about how to request login details and submit your application can be found on the website of the Dutch Tax and Customs Administration (in Dutch).

VAT that you paid in a non-EU country cannot be reclaimed through the Dutch Tax and Customs Administration. In that case, you check with the tax authority abroad if and how you can reclaim the VAT in that country.

Deliveries to private consumers

It is possible that you are doing business with customers in another EU Member State who do not file VAT returns because they have no VAT ID. Normally, you would charge the VAT from the country of your customer. This situation occurs, for example, when you sell products from your online shop. The Dutch Tax and Customs Administration calls this distance sales (in Dutch, ‘afstandsverkopen’).

Threshold amount

For distance sales the destination principle applies. This means that you send your foreign private customer an invoice with the local VAT rate of their EU country. This type of sales often refers to sales through an online shop. Using the local rate also applies to telesales to foreign consumers in another EU country. If your total annual amount of intra-EU sales to consumers remains below the threshold of €10,000, you are allowed to charge Dutch VAT.

There are 2 ways to file your foreign VAT returns. You apply locally for a VAT number and file your VAT return locally. Or you register your company for the Union scheme within the One Stop Shop system (OSS, in Dutch) of the Dutch Tax and Customs Administration. Subsequently, the Dutch Tax and Customs Administration will pay the VAT to the EU country in question. More information on this topic and explanations about the exceptions in distance sales are available on the website of the Dutch Tax and Customs Administration (in Dutch).

Dropshipping

If you have an online store you can use dropshipping. With dropshipping, your customer orders a product from your online store. Next, you forward this order to your foreign supplier. Your supplier sends the order from another country directly to your client. There are several possible situations. Both your supplier and the customer may be located abroad. In that case, you will have to comply with foreign VAT obligations.

Non-EU countries

When shipping goods to private persons outside the EU, you charge 0% VAT. When this shipment enters the country of your customer, an import declaration is made. Possibly, your customer has to pay import duty and import VAT. Agree in advance with your carrier and customer who will be paying the import levy, you or your customer. Often, the carrier pays the costs of import levies upfront and then passes on these costs. You do not owe Dutch VAT. However, you must state the turnover in your periodic VAT return. You do this under ‘rubriek 3a; leveringen naar landen buiten de EU (uitvoer)’ (question 3a; supplies to non-EU countries (export)).

When providing services to foreign consumers, you usually put the Dutch VAT on your invoice. For certain services, such as advertising services, there are exceptions to the rule. That is why in certain situations the service provided is subject to taxes in the country of your buyer, and you will need to charge the foreign VAT rate to your customer. Use the tool (in Dutch) on the website of the Dutch Tax and Customs Administration and check the exceptions.

VIES website

Before you apply the 0% VAT rate or reverse-charge the VAT to your customer in another EU country, you verify the VAT ID of your buyer. You need to make sure that you have a valid VAT ID of your customer. You can do this on the website of the European Commission (VIES). Here you verify the validity of VAT numbers in all Member States, including the Netherlands. VIES is not an independent database. This system searches the national databases of the Member States.

It works both ways. Your European supplier can request your VAT ID to verify its validity. If you have a sole proprietorship you give your VAT ID, not your turnover tax number. You only use the latter in your communications with the Dutch Tax and Customs Administration.

How does this work?

In the top part of the screen, you select the Member State of your customer and enter the VAT ID. This input field is mandatory. The system will automatically give the letters of the Member State, for example BE or DE. You leave out these letters when entering the VAT ID. Then you click on the ‘verify’ button. If the number is valid you see the notification ‘Yes, valid VAT number’. Sometimes, the system also shows the company name and business address of your customer. Print it and attach it to your invoice. This is how you demonstrate upon inspection that you have applied the correct VAT rate or reverse-chargee an existing company.

In the bottom part of the screen you enter your own VAT ID as applicant. This field is not mandatory. If you leave this field empty, you can still verify a number.

If the number is incorrect, you see the notification ‘Invalid input’ or ‘No, invalid VAT number for cross-border transactions within the EU’. Notify your customer that you have to charge Dutch VAT, because their number gets an error message. Your foreign customer may contact their tax authority for further explanation. Maybe there is an error in the national database of the country in question. In that case, the national database notifies VIES of that error.

Loading data from the local database also has consequences for company details shown by the system. One country may give more information about a company than another country. For example, if you verify a VAT number from the Netherlands (NL) or Luxembourg (LU) the system shows the business details. And if you verify a VAT number from Germany (DE), for example, the system will only show that the number is valid.