Belgian VAT Desk is associated member of the Federation of European and International Associtations established in Belgium ( FAIB)
1. Activities subject to VAT
(International) NPO’s do not enjoy a specific status as far as VAT is concerned (contrarily to the income tax system). In principle their activities are subjected to VAT (general principle of taxation). Therefore, they must register for VAT purposes and are subsequently entitled to deduct the VAT borne on the costs relating to their taxed activities.
Example 1 : an organization performing, under consideration, individual services to its members (ex: providing a specific study) exercises to that extent an activity subjected to VAT.
Example 2 : an organization organizing an annual congress in France exercises to that extent, an activity which is in principle subjected to VAT. Hence, the NPO, just as a commercial entity, must register in France for VAT purposes and charge French VAT to the attendants. The NPO has, in turn, the right to deduct the VAT (Belgian or foreign) on the costs relating to this subject-to-VAT activity. However, two limits to this general principle of taxation must be brought forward.
2. Activities exempt from VAT
Some activities (specifically listed in the legislation) are exempted from VAT. The (international) NPO’s performing exclusively those activities do not have to register for VAT and cannot subsequently deduct the VAT borne on the costs relating to the exempted activities.
Example : an organization which, without seeking profit and in return for a subscription from its members, carries out the representation and defense of the collective interests of its members (lobbying), performs to that extent an activity exempted from VAT under art. 44, §2, 11° of the Belgian VAT Code. Hence, the organization does not have to invoice VAT to its members and does not have the subsequent right to deduct VAT on its costs relating to this exempted activity.
3. Activities « outside the scope » of the VAT
There are also activities considered of general interest (to the public at large) which are outside the scope of VAT. The (international) NPO’s performing such activities are not, under certain conditions, considered as VAT-able person and can therefore not deduct the VAT borne on the costs relating to those “outside the scope” activities.
Example : the realizing by an organization of a study ordered and fully subsidized by a public body and which will freely be put at the disposal of a large public is an operation in principle outside the scope of the VAT. The organization does not have the status of a taxable person for this specific operation and is therefore not entitled to deduct VAT on the costs relating to this activity.
4. Mixed activities
The NPO’s usually performs activities of a mixed nature: activities subjected to VAT, exempted from VAT and outside the scope. In such a case, the issue consist in determining the extent of their right to deduct VAT: general deductible proportion based on the turnover, proportion based on the real affectation of the goods and services, attributive system, etc.
The determination of a VAT status of an (international) NPO is crucial in two ways :
- A correct determination of the VAT status allows to consider the extent of the deduction right; i.e. the VAT percentage the organization can deduct on the costs she bears for its activities.
- A correct determination of the VAT status also allows to take the potentially necessary steps in order to prevent “bad surprises” during a potential administrative VAT audit. Nowadays, the (international) NPO’s are indeed more and more audited by the fiscal authorities.
Thanks to its experience acquired over the last years, Belgian VAT Desk developed two phases allowing to maximize the VAT deduction right of the (international) NPO’s:
Phase 1: VAT AUDIT
Belgian VAT Desk will perform a VAT audit of the organization :
- Analysis of the NPO concept for VAT and income tax purposes;
- Analysis of the activities subjected or not to the VAT -> determining the taxable person status as far as the deduction right is concerned (total, mixed, partial);
- Determining the extent of the deduction right;
This first phase tends to determine the precise VAT status of the organization and hence the extent of its deduction right (i.e. the VAT amount it is entitled to recover on its goods and services purchases). To conclude this phase, a written report is provided to the organization with a potential estimation of the results. This report is detailed in a final meeting.
Phase 2: PRACTICAL VAT MANAGEMENT
Belgian VAT Desk will assist the organization in the practical management/implementation of the solutions resulting from the VAT audit :
- Assistance in the potential negotiations with the Belgian tax authorities ;
- Assistance in the implementation of the internal structure taking care of the VAT issues;
- Assistance in the foreign aspects (relating for instance to an annual congress) ;
This second phase aims at the implementation of the structure enforcing a legal certainty for the operations at stake and, if needed, the structure allowing the VAT recovering.
Our experience in the field taught us that an accurate and efficient VAT management leads to :
- Either a maximization of the VAT rules bringing financial gain to the organization ;or
- An avoidance of existing fiscal exposure