VAT exemption

What does 'exempt from VAT' mean? 

Apart from a few exceptions laid down by law, all self-employed people and companies pay VAT on the sales they make, i.e. on services and goods supplied. There are, however, exceptions depending on the type of transaction – for example export abroad – but also structural exceptions: VAT exemption due to the nature of the transactions and services the entrepreneur/company supplies.  

Exemption based on article 44

Taxable persons who carry out transactions mentioned in Art. 44 and 44 bis of the VAT Code do not have to charge VAT. They therefore draw up bills and invoices without VAT. On the other hand, they are not entitled to deduct VAT on their purchases (incoming invoices). Examples are doctors, hospitals, social security services, childcare facilities, etc. … Read more about the provisions of art. 44 in this article. These rules are mandatory, so a doctor cannot decide to charge VAT anyway.

Exemption under the small business VAT exemption scheme

A number of small businesses/entrepreneurs do not have to charge VAT. Small means limited in turnover (and therefore activity). In Belgium the threshold is an annual turnover of at most € 25.000,- excluding VAT. Read more about this scheme in this article.

The entrepreneur or company chooses whether or not to follow the small business scheme. Those who do issue invoices without VAT, which can give a competitive advantage and/or more profit per 100 euros (for example the same total price for a service as a competitor who does charge VAT, but without having to pay the VAT over). But be careful: anyone following this scheme may NOT deduct the VAT on purchase invoices. This therefore represents an extra cost compared to competitors who do charge VAT.

Exempt from VAT versus 0% VAT rate

There are a number of other scenarios in which no VAT amount will appear on an invoice because the applicable rate is 0%. However, this is not an exemption, because if the zero rate were to change to 2%, that rate would lead to an appropriate VAT amount being charged. Examples are newspapers or the sale of recycled goods such as scrap metal.

Be careful, no VAT on the invoice because of the zero rate is something different from exemptions under a special scheme such as reverse charge (medecontractant) or export.

• Work carried out under reverse charge (medecontractant) follows a VAT rate, only the tax is assessed by the buyer, who settles the VAT at the appropriate rate via the VAT return
• With exports such as intra-Community supplies, the buyer settles the appropriate VAT via his or her return in his or her own country (EU) or under the tax rules applicable there (e.g. in the US).

Exemption and the 0% rate are therefore fundamentally different!

Exemptions require a formal statement on the invoices, such as Special exemption scheme for small businesses or VAT reverse charged. In those cases you must certainly not state a 0% rate on the invoice, because it does not apply (and can cause a lot of problems with the VAT administration).