Subject to VAT or exempt from VAT? 3 numerical examples!

When you start out as an entrepreneur, there are an amount of things you need to think about. What activities will you carry out, do you need to take out certain insurances, who are my customers? ?

Determining the right vAT type is also part of that list. In this article we explain the three vAT types and then use a calculation example to explain the differences.

From company number …

Still, let’s start at the beginning, namely the company number, which is a unique 10-digit code. Student-entrepreneur, secondary occupation, sole proprietor, company … they all have a unique company number. Your company number is also your vAT number, but with the letters BE in front of your 10-digit number.

The Crossroads Bank for Enterprises (KBO) is a public database that states all Belgian company numbers. You can search by company number, company name, locations, activities …

… to not subject to VAT or subject to VAT

Above, we talked about a company number and how it can sometimes be activated for VAT administration, with the emphasis on ‘sometimes’!

A company number is sometimes activated for vAT, sometimes not. This, in turn, depends from your activities. There are activities that do not legally fall under the vAT legislation, in which case you mainly end up with (para)medical, social and cultural activities.

All other activities do fall under the VAT legislation! But even then, you still have a choice to either:

• Do file declarations -> subject to VAT.
• Not submit declarations -> exempted from VAT.
  

Below you can visually see the differences between the statutes:

Not subject to VAT

Doctors, physiotherapists, nurses, certain cultural activities … All these entrepreneurs have a company number, but that company number is not activated for VAT purposes. Here we are talking about entrepreneurs who are not subject to VAT.

These entrepreneurs have no choice whether or not to participate in the vAT process. The government has determined that a range of activities are not subject to VAT legislation, which can be found back in Article 44 of the VAT Code. These are activities from the (para)medical, social or cultural sector.

Discover here a comprehensive summary of which activities fall under that famous Article 44.

The government has decided for these activities that vAT should never apply, as otherwise they would mean too much of an increase in cost for many private persons. Just think of a visit to a physiotherapist where you would have to pay an additional 21% vAT %.

So these entrepreneurs only question a company number through a recognised enterprise office, but vAT activation is not even possible.

Of course, if you are not subject to VAT, you can use Dexxter accounting software to take control of your bookkeeping yourself! Via our specially developed application, you will meet all requirements, for example: declarations that are only relevant to you & required entries on your sales invoices.

Not subject to VAT: a numerical example!

Kevin Peeters is an independent physiotherapist through a sole proprietor and has nothing to do with vAT purely on the basis of his activities. He has a turnover worth €10,000. Excluding or including vAT, Kevin does not have to worry about that.

Kevin also made some purchases during the year, of course: software costs, small equipment, some office equipment … All in all, Kevin paid €6,050 for this, which is €5,000 excluding VAT, and the suppliers each charged 21% vAT %.

Because even though Kevin himself is not subject to VAT, his suppliers simply charged him their own vAT rate. So the total cost of Kevin’s purchases is indeed €6,050. The VAT that Kevin was charged cannot be recovered, but is included in his accounts as a cost.

Kevin therefore has a turnover of €10,000 against which €6,050 in costs are charged. That leaves €3,950 in profit in his accounts.

Kevin will never be able to recover VAT on his purchases because they were made for an activity that the government has ruled is not subject to VAT. For that activity, you can never charge VAT to customers and you will therefore never be able to recover VAT on purchases.

Subject to VAT

As explained above, your activities as a self-employed person can therefore determine that you are not subject to VAT. Consequently, the reverse is also true; the other group of activities is consequently always subject to VAT.

Here again, we start with the company number, only with this category of entrepreneurs, the company number will also be activated for VAT purposes. So a vAT number is simply a VAT activation of your company number. It remains exactly the same 10-digit code, only activated for vAT administration.

Everyone in this group will end up under the VAT story, yet you still have two subdivisions, namely: exempted from VAT and subject to VAT.

It sounds a bit contradictory, but so VAT-exempted entrepreneurs also have a VAT number. Only they are exempted from filing vAT declarations!

Entrepreneurs subject to VAT also have a vAT number and (unlike those exempted from VAT) must also file VAT declarations.

Getting your company number activated for vAT is certainly nothing to worry about, as both applying for your company number and getting it activated for vAT purposes can be done perfectly via one of the numerous company packages.

You can find some more information about the role of the enterprise office on this page.

Exempted from VAT

Time to zoom in a little deeper into the two groups of entrepreneurs covered by VAT administration, we start with those exempted from VAT. So, as contradictory as it sounds, VAT-exempted entrepreneurs do indeed have a vAT number, only they are exempted from filing vAT declarations.

So even this group of entrepreneurs must have their company number activated for vAT purposes, which can be done through a company office.

When registering your vAT number, you can then choose to be either subject to VAT or exempted from VAT based on the VAT exemption scheme for small businesses.

There are of course some conditions attached to this; not everyone always has the choice to make use of the VAT exemption scheme for small enterprises.

1 ) Turnover on an annual basis maximum €25,000

So the first condition is that your annual turnover must not amount to more than €25,000. Pay attention, though, because during the year you start or stop your business, you will probably not have 365 days of self-employed activities due to start or stop during the year.

In such a case, you have to recalculate the €25,000 maximum limit to the number of days you effectively had a self-employed activity. Or you can use Dexxter of course, in which case Dexxter will do the calculations for you automatically and you will see your updated maximum limit on your dasboard. Including handy notifications with instructions if you go over the maximum limit!

So the maximum turnover is an estimate you have to make for the future. Fortunately, you can always become subject to VAT at a later date if, for example, you notice during the year (or in later years) that your turnover will exceed €25,000 on an annual basis.

We are also only talking about turnover here ! For the vAT exemption, it makes no difference whether you carry on an activity where you incur expenses of €20,000 or one where you only incur expenses of, say, €5,000. It is only the turnover that counts to keep the vAT exemption.

2) No works in immovable state

Work in immovable state can be freely translated to work on a building, e.g. contractors, carpenters, wallpaperers, handymen, gardeners, window washers and other cleaning services such as cleaning women. So if you do one of these activities, you will never be able to use the VAT exemption.

Do you meet these two conditions?

Even then, it remains a choice you make! You can just as easily have no turnover and still be subject to VAT, as long as you submit the vAT declarations (via Dexxter), that’s fine.

So being exempted from VAT is a conscious choice, not something that happens automatically. Once you make this choice,this VAT exemption continuesover the years. So you don’t have to reconfirm the choice to be exempted from VAT every year! Only if you later make the choice to become subject to VAT will you (or a business office) have to signal the VAT administration again.

Once you have a company number, where that company number is then exempted from VAT, Dexxter will have an updated profile ready for you.

What can you expect from Dexxter? An updated flow to create sales invoices that comply with all legal rules as exempted from VAT, a convenient way to enter expenses and above all a unique, personalised timeline so you always know which important deadlines are coming your way.

That timeline is updated to who you are, when you started and what actions you have carried out. Super convenient because this way you never stress about forgetting something, 100% peace of mind.

A VAT exempted entrepreneur: a numerical example!

Dirk Janssens is an entrepreneur who carries out his activities via a sole proprietor and has opted for VAT exemption. In doing so, he sells all kinds of goods worth €10,000 on an annual basis on which he has charged 0% vAT %, as he has opted for the VAT exemption.

Dirk also has a formidable competitor called Franky, a competitor he keeps a close eye on. For example, Dirk knows that his competitor Franky charges the same selling prices, but Franky is subject to VAT. So for the same products Dirk offers, competitor Franky charges €10,000 + 21% vAT %, which makes a total amount for the customer of €12,100.

So Dirk is cheaper than his competitor, just because of his VAT exemption! He has already thought about raising his selling price a bit, e.g. to €11,000. That way he remains cheaper than his competitor Franky, but earns himself an extra €1,000. For now, that has always remained a pipe dream, who knows, one day .

Dirk also made some purchases during the year, of course: software costs, trade goods, some office equipment … All in all, Dirk paid €6,050 here, i.e. €5,000 excluding VAT ánd the suppliers each charged Dirk 21% vAT %.

Because even though Dirk himself is exempted from VAT, his suppliers simply charged him their own vAT rate. This is the way it should be, because every entrepreneur looks at his own VAT status, consequently suppliers just pass on 21% VAT to Dirk.

Thus, the total cost of Dirk’s purchases is €6,050. The VAT that Dirk was charged cannot be recovered, but simply enters his accounts as a cost.

So Dirk has a turnover of €10,000 against which €6,050 in costs are stated. This leaves €3,950 in profit in Dirk’s accounts.

Dirk states again his conundrum of increasing his selling price to €11,000. That would still make him cheaper than his competitor subject to VAT, right? Because that one has a total selling price of €12,100, being €10,000 + €2,100 in VAT.

If Dirk would only sell to private person customers, Dirk’s reasoning is correct, he would remain the cheapest even after his price increase! Because a private person customer simply pays the total selling price, including vAT. After his price increase, Dirk charges €11,000 (including 0% VAT, due to his VAT exemption), which is still cheaper for a private person customer than purchases from Dirk’s competitor for €12,100 (including 21% vAT %).

If, on the other hand, Dirk only sold to customers subject to VAT, his reasoning falls apart. Because a customer subject to VAT would pay the sales price including VAT, but could then recover that VAT via a vAT declaration. So customers subject to VAT mainly look at the purchase price excluding VAT, which for them is the actual cost price of their purchase.

So the customer subject to VAT can either buy from Dirk at €11,000 with 0% VAT (after Dirk’s price increase by €1,000, but still with his VAT exemption).

Or, the customer subject to VAT can buy from Dirk’s competitor at €10,000 excluding VAT. That 21% VAT that is then added must first be paid, but then they recover that €2,100 via their vAT declarations anyway. So Dirk has become more expensive than his competitor!

At the bottom of this article we will also come back to this numerical example via a conclusion, now we will zoom in on the VAT subject to VAT statute.

Subject to VAT

Time to take a closer look at the other group of entrepreneurs with a VAT number, namely those subject to VAT.

Here, too, just the same as for VAT-exempted entrepreneurs: you have a company number and then this company number is activated for VAT administration. This can be done via a company office at the same time as you apply for a company number.

We are happy to explain the big difference with an entrepreneur exempted from VAT using a numerical example!

An entrepreneur subject to VAT: a numerical example!

Franky Dewolf is an entrepreneur who performs his activities subject to VAT through a sole proprietor. In doing so, he sells a product worth €10,000 on which he has charged 21% vAT %, as he has opted for VAT liability. Thus his total selling price is €12,100, i.e. €10,000 excluding VAT + €2,100 in VAT.

Franky also has a competitor he keeps a close eye on, namely Dirk. For example, Franky knows that his competitor is exempted from VAT. So for the same services Franky offers, competitor Dirk charges €10,000 + 0% vAT %, which makes a total amount for the customer of €10,000.

So it seems that Franky is more expensive than his competitor simply because he is subject to VAT and his competitor is exempted from VAT. Franky has already regularly thought of the idea of questioning his own vAT exemption, but has not taken the step for now, who knows, someday …

Franky also made some purchases during the year, of course: software costs, trade goods and some office equipment. All in all, Franky has paid €6,050 for this, i.e. €5,000 excluding vAT on which €1,050 in vAT has then been charged by his suppliers.

Still, the real cost price for Franky is only €5,000, and the €1,050 in vAT he has been charged is nothing to worry about. He may have to pay it to his suppliers, but he recovers it just as quickly afterwards via his vAT declaration. So the actual cost of Franky’s purchases is actually only €5,000.

So, as mentioned, Franky has invoiced €12,100 on an annual basis, yet his real turnover is €10,000, which is the amount excluding vAT amount. Anything he has charged from VAT to his customers, he still has to pass on to the VAT authorities afterwards.

So Franky has a turnover of €10,000 against which €5,000 in costs is stated. This leaves €5,000 in profit in his accounts.

Now we come back to Franky’s conundrum: is he effectively more expensive than his VAT-exempted competitor Dirk AND should Franky therefore still apply for a VAT exemption?

If Franky only sold to private person customers, this reasoning is effectively correct. Because a private person customer simply pays the total sales price including VAT. As mentioned, Franky’s selling price is 12,100 (including 21% vAT %). That is a higher price for a private person customer than Franky’s competitor, because that VAT-exempted competitor charges only €10,000 with 0% VAT.

In contrast, if Franky were to sell to customers subject to VAT, he would not be more expensive than his competitor at all! Because a customer subject to VAT pays the sales price including VAT, but can then recover that VAT via a vAT declaration. Customers subject to VAT therefore look at the purchase price excluding VAT, which for them is the actual cost price of their purchase.

So the customer subject to VAT can either buy from Franky at €12,100, but that €2,100 is recoverable VAT, so the real cost price is €10,000. Or the customer subject to VAT can buy from Franky’s competitor at €10,000 with 0% vAT %, so here too the real cost is €10,000.

So Franky and Dirk actually have the same selling price if you view it from the point of view of customers subject to VAT.

Moreover, Franky will be left with more profit than his direct competitor! Indeed, with the same effort than his exempted competitor, Franky will have made significantly more profit!

This is because Franky can recover VAT on his purchases, the actual cost of his purchases will consequently be lower, because he will recover the VAT charged anyway. So Franky has €10,000 in sales with only €5,000 in costs, giving him €5,000 in profit.

Remember our example with the VAT exempted entrepreneur, where we went into more detail about competitor Dirk’s accounts. Dirk also had €10,000 in sales but this was offset by €6,050 in costs (including non-recoverable vAT on purchases).

So Dirk who is exempted from VAT made a profit of only €3,950, which is just like that €1,050 less profit than Franky, who is subject to VAT!

So which vAT type do I choose?

We went through the three vAT types, namely: not liable to VAT, exempted from VAT and subject to VAT.

Not subject to VAT

Here you don’t have a choice at all, it stems from the activities you will undertake as a self-employed person. Think of (para)medical activities and certain activities in the social & cultural sector. This group of entrepreneurs has a company number, but it has nothing to do with vAT or VAT administration.

Here we are talking about the famous Article 44 of the VAT Code, here you can once again find the summary of which activities fall under that Article 44.

VAT exempted or subject to VAT

Following the numerical examples from Dirk with VAT exemption and Franky with VAT liability, it appears that the answer is never unequivocal. As soon as you have to do some professional purchases, the advantage seems to go to the VAT subject to VAT statute anyway.

Conclusion 1

Being able to recover vAT on your purchases pretty quickly makes a big impact on your company’s profit!

Because the VAT subject entrepreneur has to pay VAT on his purchases, but recovers it afterwards via a vAT declaration. The VAT exempted entrepreneur, on the other hand, also has to pay VAT on his purchases, but cannot recover that VAT via a VAT declaration. The vAT he cannot recover on his purchases is therefore an additional cost.

Conclusion 2

It makes a huge difference whether your customer is a private person or a company subject to VAT!

As discussed, the selling price including VAT provides a big difference between the two vAT types. For example, as a VAT subject to VAT, you have to charge an additional 21% VAT on your sales, which obviously makes a big difference compared to 0% VAT due to VAT exemption.

Still, we have nuanced this, it depends a lot on exactly who your customer is!

If your customer is a private person, that customer will look at the total sales price including VAT. This way, the VAT-exempted entrepreneur comes out cheaper for private person customers.

Is your customer a company subject to VAT, then that customer looks at the sales price excluding VAT. This way, the VAT subject entrepreneur does not come out more expensive at all than the VAT exempted entrepreneur. The VAT charged extra is still recovered afterwards by the customer subject to VAT?

Dexxter makes it easy for you!

Whatever vAT type you choose for your sole proprietors, Dexxter is ready for you! We are the accounting tool for Belgian sole proprietors who want to take charge of their own bookkeeping.

Start your free trial today. This way, you can discover all our functionalities, including all kinds of customised adjustments for the entrepreneur not subject to VAT, not exempted from VAT or subject to VAT.

Including your own custom-generated tax timeline. This allows you to see all tax deadlines relevant to your vAT type.

Do you still have specific questions? That’s perfectly normal, many from your competitors for that matter!

This is precisely why we have also built a community in Dexxter. That is a place in the application where entrepreneurs can ask questions and get answers from other entrepreneurs, sparring together to find solutions.

In addition, we also have learning centre available Dexxter, packed with content, videos, courses …

You are not alone as a (starting) self-employed person, let that be clear!

Would you like to look up which vAT type someone has?