Sales tax is also called VAT, which is short for Value Added Tax. It is a tax that not every entrepreneur has to deal with. Nor is the timing the same for all entrepreneurs.
Some organizations are exempt from VAT. This may be because of the following reasons:
- Your organization belongs to a branch or business activity that is exempt from VAT. For example, healthcare, games of chance or funeral directors.
- You are operating on a very small scale, and the revenue per fiscal year is that low that you have been granted an exemption after consulting with the Belastingdienst.
Most business owners do have to deal with VAT. If you fall into that group, then you are tasked with collecting VAT on all sales invoices on behalf of the Belastingdienst. You can offset the VAT you pay over purchase invoices against the VAT you pay to the Belastingdienst over your revenue. You'll read more about that in a moment.
Are you VAT exempt, though? In that case, ask all your suppliers to send you VAT-exempt invoices and provide them with your VAT ID. You cannot reclaim VAT from the Belastingdienst if a supplier accidentally charges you VAT when you are exempt.
Receive and forward VAT
If you do have to deal with VAT, you get a simple task on top of your own bookkeeping. You collect VAT on sales on behalf of the Belastingdienst and pay VAT on purchases. Once in a while you make a calculation and the result of that calculation determines whether you have to send something to the Belastingdienst or receive something from them.
You set aside the VAT you charge over sales invoices in your accounts. That money does not belong to you, but to the Belastingdienst. You also keep a record of the VAT you have paid over business expenses. You can deduct this VAT from the VAT you have to pay over your revenue. The latter is called 'input tax deduction'. You pay the difference to the Belastingdienst or get it back from them.
Time for an example
Daxto looks at it from your perspective as a business owner. VAT you receive is called 'te betalen BTW' and VAT you pay is called 'te ontvangen BTW'. Because that's how it is for you, between your company and the Belastingdienst.
|Te betalen BTW (VAT on your sales invoices, payable to the Belastingdienst)||€ 20.00|
|Te ontvangen BTW (VAT on your purchase invoices, to be received from the Belastingdienst. In other words, input tax.)||€ 5.00|
|Conclusion: to be remitted to the Belastingdienst||€ 15.00|
In the example above, € 20.00 of VAT was charged on your sales invoices. You received this from your customers and have to pay it to the Belastingdienst. There is also € 5.00 input tax, which is VAT you have paid over business purchases. You set these two amounts off against each other and so you come to the conclusion that you still have to pay € 15.00 to the Belastingdienst. So you subtract the VAT paid (input tax) from the VAT received to work out what amount still needs to be received or paid. An example of a situation where the Belastingdienst is going to pay you back:
|Te betalen BTW||€ 80.00|
|Te ontvangen BTW (input tax)||€ 230.00|
|Conclusion: to be received from the Belastingdienst||€ 150.00|
In the example above, the Belastingdienst is going to pay you. This is because the amount of VAT paid by you (input tax) exceeds the amount of VAT received by you.
What about rates?
The examples above are kept simple; an incoming amount and an outgoing amount. The reality is not much trickier, but it is different. For example, you have to deal with different VAT rates. A good example is how food has a 9% VAT rate and so-called luxury items have a 21% VAT rate. However, that doesn't make any difference to the way it works; it stays the same. It's just the sum that gets a little trickier. In reality, it can look like this:
|1a. BTW hoog (21%)||€ 1000.00||€ 210.00|
|1b. BTW laag (9%)||€ 100.00||€ 9.00|
|5b. Voorbelasting (input tax)||€ 85.00|
|Conclusion: to be remitted to the Belastingdienst (219-85=)||€ 134.00|
Are you asking yourself what 1a, 1b and 5b have to do with this? That's easy. When you declare your VAT, you answer a questionnaire from the Belastingdienst, which has questions from 1a up to 5c. Using the terms in the example above, you can immediately see at which real questions those amounts are entered on the VAT return.
You fill in the 'omzet' (revenue) column as a check for yourself and the Belastingdienst. This way you can check whether the amount per rate is correct. You don't do this with your input tax, which is where, regardless of the VAT rates paid, you only enter the sum of the amount you paid. The Belastingdienst can check this with the other entrepreneur.
What about abroad?
Jeez, you keep on asking, don't you? But that's right, if we also include abroad in this story then there will be a little extra. We also have to divide abroad into two parts:
- Outside the Netherlands, but within Europe: to entrepreneurs you shift VAT and you mention their VAT number on your sales invoice. Private individuals pay Dutch VAT that you collect and remit to the Dutch Belastingdienst.
- Countries outside Europe: to both individuals and business owners, you shift the VAT. The customs of those countries may decide to levy local tax with your customer.
Furthermore, it also matters whether you provide a service there or a product. And thus whether it is to a private person or another entrepreneur. Still, it's not as bad as it sounds; you just have to figure out how it works for your business. You can do that on the website of the Belastingdienst, or you can consult a financial expert. Once you know what rules apply to you, it's just a matter of selecting the right rates in Daxto. Your Daxto assistant will take care of the rest. Be sure to read about ICP at the bottom of this article if you do business across the border.
When to file the VAT declaration?
This is also not the same for everyone, but it is for many entrepreneurs. Most entrepreneurs declare quarterly, so every 3 months. Although others declare per half year or year and very large companies even declare per month. Most entrepreneurs belong to the group that declares VAT quarterly.
The Belastingdienst sends you a blue envelope by mail when it is time for your company to file its sales tax declaration. In addition, you may receive an email reminder from the Belastingdienst for each time period. And on top of that, your Daxto assistant will remind you on the environment overview. If your time period has expired (whether it is a month, quarter or year) and you have not yet filed your declaration, your assistant will remind you. It is important that you specify in your settings which time period applies to you. By default, this setting assumes that you must file a tax declaration every quarter.
How do I file a tax declaration?
Take every VAT declaration very seriously, that way you avoid having to use supplementation later. Fortunately, filing the VAT declaration is not complicated. As always, it starts out quite simply with a check. You need to make sure everything is in your administration. So for example:
- Did you create all your sales invoices? Or did you forget to fill out one or more? You can do that now, before you file the declaration.
- Are there any concept sales invoices that you want to quickly convert to a real invoice? Then set them to final so they get an invoice number. And, of course, send them to your customer as well.
- Do you still have invoices you want to mark as doubtful? Then this is the time. These will reduce the 'te betalen BTW'.
- Do you also pay attention to bad debt invoices? These invoices should be marked as bad debt no later than one year after the payment due date. Unless you have a legitimate reason to do so before then.
- Have you entered all your purchase invoices and all your receipts? This way you can make sure that the input tax calculated by your Daxto Assistant is correct.
- Have all the transactions on your financial accounts been added? Make sure they are updated. Whether you do it by hand, upload by file or have a connection.
- Are you also sure that none of the transactions are incomplete or unconnected? If not, you'll want to fix that quickly.
- Maybe you don't do anything with the memorandum, but if you do, have you made all the entries that affect VAT there?
If your Daxto assistant had no further comments when you asked him to double check your accounting ( Menu → Environment → Assistant), then it's time for the tax declaration. You start this via Menu → Accounting → VAT & ICP declaration. Or click here, if you are logged in, to get there right away.
Once there, click New Declaration at the top. Your Daxto assistant will take you through 3 steps:
- Check to see if you have entered everything.
- Choose the correct time period, see the calculation, and use it to file your declaration.
- Save your Daxto declaration permanently and upload the PDF files you received from the Belastingdienst.
Make sure that after you file your tax declaration, you also choose to download the corresponding files from the Belastingdienst. This concerns the PDF of your VAT declaration. If you later also submit an ICP declaration, which you will read about below, you will want to download the PDF of that as well. You upload both files to Daxto in step 3 to make sure you have that data recorded for yourself.
Although your Daxto assistant could have filed the tax declaration for you with the Belastingdienst because this is technically possible, it is a deliberate choice of your assistant not to do so. If your Daxto assistant arranges your VAT declaration directly with the Belastingdienst behind the scenes, then you, as entrepreneur, will not be able to find anything about this on the website of the Belastingdienst. Therefore, you will not see your declarations on the portal of the Belastingdienst at a later time. This is a technical challenge that the Belastingdienst could look into in the future.
Daxto's goal is overview. And overview is better when you can see at the Belastingdienst which declarations you have made in the past. This is especially nice if you ever quit your business, or stop using Daxto. In that case, you just want the history of your VAT declarations with the Belastingdienst to be complete.
Daxto makes it incredibly easy. In step 2, you literally see which answers you need to enter in the declaration screen of the Belastingdienst. When you have two computer screens attached to your computer, it's even easier to see that side by side.
What do I do with the sales tax transaction?
As soon as you pay money to the Belastingdienst, or have received money from them, this transaction appears in one of your financial accounts. You connect that transaction to the 'Betaalde en/of ontvangen BTW' category. It's very important that you choose that one, so pay attention.
After this, your Daxto assistant will do the rest. You will see in your VAT declarations that the declaration you made now has a connection to the transaction. Also, on your balance sheet, the 'Betaalde en/of ontvangen BTW' category will be reset to zero. So everything is perfectly in order.
What does ICP have to do with VAT again?
Oh right, we still need to discuss that. ICP stands for 'intra-community performance'. There's nothing Daxto can do about that either. What matters is that you declare all the business you have done abroad. Especially just outside the Netherlands, but within Europe.
The idea is simple. Europe has a lot of countries, all under the same European flag. All of them have their own tax administrations, and if you do business with European countries then you have to specify the situation. That way the Tax Administrations of Europe can fight among themselves to see who gets what.
Before July 1, 2021, this was quite a hassle for business owners, as you might remember. But that's a thing of the past. With the one-stop system, things have become a lot easier for a lot of entrepreneurs. You report everything to the Dutch Belastingdienst, and if there is something to sort out, they arrange it with other European countries. That way you no longer have to worry about it.
If you do business with countries outside the Netherlands, remember to fill in the ICP declaration. If you have entered the correct VAT rates, your Daxto assistant will remind you. The ICP declaration is done via the same portal as the normal VAT declarations, but separately from the normal VAT declarations. And once you've done them, you'll want to save the PDF of that and upload it to Daxto as well so all of your data is complete.
In the end, VAT is a task that you, as an entrepreneur, may or may not have to deal with. And if you do get this task, then it is easily taken care of. This brings us to the following: VAT is part of the job. You collect it, pay it, remit it or receive it back. So it has little to do with your business. That's why entrepreneurs often don't even talk about VAT. What you will hear is:
- '€ 50 ex'
- '€ 50 ex. VAT'
- '€ 50 exclusive'
It all means the same thing; that they are talking about prices without VAT. That VAT is omitted because every entrepreneur knows that this will be added and that VAT that is paid can also be deducted again as input tax. So it is not relevant for entrepreneurs among themselves. VAT doesn't cost an entrepreneur anything and it doesn't generate anything.
When you hear an entrepreneur talk about amounts, assume they are excluding VAT. Especially to other entrepreneurs. This is also why you see absolutely no VAT on your results report. You do see VAT on your balance sheet report. The only reason you see VAT on your balance sheet is so you can keep track of the amounts you have received and paid. That way you can settle them later with the Belastingdienst.
VAT belongs to the Belastingdienst, not to you as an entrepreneur. By leaving it out of all your figures and reports, you see the figures that do matter. Excluding VAT.