Mixed taxable persons can determine their VAT deduction right via two methods: either they perform the VAT deduction on the basis of a general pro rata method or they perform the VAT deduction on the basis of the actual use that is made of the goods and / or services received.
The actual use method implies the following:
- a 100% VAT deduction is applied on costs exclusively intended for activities that grant the right to deduct VAT;
- no VAT deduction is allowed for costs that are exclusively intended for activities not granting the right to deduct VAT;
- a special pro rata has to be determined for VAT on ‘mixed costs’ that cannot be exclusively attributed to one of the two aforementioned categories.
Up until now, the option for VAT deduction on the basis of the actual use was subject to an application procedure whereby the competent VAT office had to grant an explicit approval to the taxpayer in order to exercise its VAT deduction right in accordance with the actual use. On the other hand, the VAT authorities could also impose the actual use method to the taxpayer.
As from the 1st of January 2023 the new procedure will merely consist of a prior electronic notification by the taxpayer of its choice to apply the VAT deduction on the basis of the actual use. This will have to be done via the form E-604A (declaration of commencement economic activity) or the form E-604B (declaration of modification).
- Existing mixed taxable persons that want to shift from the general pro rata method to the actual use method from one year to another: they will have to perform the notification before the end of the first VAT return period of the calendar year, i.e. before 31 January (monthly VAT returns) or before 31 March (quarterly VAT returns). The notification will then have effect on the 1st of January of said calendar year.
- New mixed taxable persons (i.e. start of activity or change of economic activity resulting in capacity of mixed taxable person) will have to perform the notification before the last day of the first VAT return period following the start or change of their economic activity. The notification will then have effect on the first day of the aforementioned VAT return period.
- Mixed taxpayers that already apply the actual use method on 31 December 2022 and that wish to continue in this way: they also have to confirm their choice via an electronic notification to be performed before 1 July 2023.
When the prior notification is not performed within the prescribed period, then the taxpayer cannot apply the actual use method earlier than the 1st of January of the following calendar year.
The notification in order to deduct the VAT on the basis of the actual use method is valid for an indefinite period of time. It must be noted that it is not possible to shift back to the general pro rata method until 31 December of the third year following the aforementioned notification.
The VAT authorities can oppose against the application of the actual use method or the criteria used by the taxpayer in the framework of this VAT deduction method. This should be done through a reasoned decision that is communicated to the taxpayer at the latest by 31 December of the year following the year in which the initial notification by the taxpayer entered into force. This procedure does not impact the fact that the VAT authorities can always challenge the VAT deduction method applied by a taxpayer within the applicable statute of limitations (e.g. during a VAT audit).
Finally, mixed taxable persons applying the actual use method also have to communicate certain details to the VAT authorities together with the filing of their VAT return for the first quarter of the calendar year (or the January, February or March VAT return in case of a taxpayer filing monthly VAT returns), i.e.:
- the final general pro rata VAT deduction percentage for previous calendar year;
- the proportion, in percent, of respectively the input VAT on costs relating to activities that grant full input VAT deduction, the input VAT on costs relating to activities that do not grant input VAT deduction and the input VAT relating to mixed costs;
- the special pro rata VAT deduction percentage that is applied for the aforementioned mixed costs.
In case of further questions or in case you need further assistance in relation to the above, please do not hesitate to reach out to your KPMG advisor.
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