Who is subject to VAT?
In principle all trainees, lawyers and partners who regularly provide legal services on an independent basis (i.e. support staff, working in a subordinate relation, will not be affected) will in principle have to register for VAT purposes, charge VAT and fulfill periodic VAT formalities.
However, they will not be seen as VAT taxable persons when they contribute their activities, detain shares, nor when they take up certain (statutory director) mandates within the law firm, in companies, when they act as a substitute judge or take up responsibilities within the bar associations.
Within certain (turnover) limits and under certain conditions, trainees and lawyer- associates have the option to either apply for the “special scheme for small enterprises” or to apply for the “optional special regime for lawyer-associates and lawyer-trainees” and thus be dismissed from most VAT formalities. In exchange, they will voluntarily waive their right to input VAT deduction.
With respect to the partnership forms (with or without legal personality) used by lawyers to structure their activities, the possibilities and the corresponding VAT status of those partnerships/cost sharing associations (whether or not operating under a common name) and of the individual lawyers are divergent.
21% VAT or not?
Legal services (after 1 January 2014) located in Belgium, in principle, will be subject to the standard VAT rate of 21%, with the exception of:
- A number of specific services that can still be exempt from VAT (e.g. debt or family mediation);
- The services of liquidators where a mandatory reverse charge mechanism by the bankrupt will be applicable;
- Legal aid services (so-called “pro-deo” services) that will be subject to a 0% VAT rate (i.e. with right to input VAT deduction).
VAT is charged over the total compensation, with the exception of taxes, duties or costs paid in advance “in the name and for the account” of the customer (e.g. Court registry fees, bailiff expenses).
Chargeability of VAT and transitional measures
The administrative circular letter contains detailed overviews regarding the rules for the place of supply (where do legal services rendered to foreign customers need to be taxed for VAT purposes?) and chargeability of VAT(when is the VAT due?) for different types of services rendered to private individuals (B2C), VAT taxable persons (B2B) or to governments (B2G).
The circular letter also handles questions, per type of customer, regarding the correct VAT treatment of services spanning both 2013 and 2014 and which are or are not paid before the year end. Typical examples are the (on-going) services rendered in the framework of a legal procedure. Also the issuance of invoices with respect to provisions or advances and possible abuse, are treated extensively in the circular letter.
Right to input VAT deduction
Depending on the VAT status (normal, mixed or partial VAT taxable person) and the choices made with regard to the filing of periodical VAT returns, lawyers (trainees) will be able to recover the input VAT on costs attributable to their VAT taxable activities according to the rules (e.g. subject to the VAT deduction limitations) and conditions (e.g. the possession of compliant VAT invoices) that apply to other VAT taxable persons.
The input VAT on “non consumed goods or services” will still be deductible in 2014 (if documentary evidence is available). As it was the case for the bailiffs and notaries, lawyers will be able to revise the “historical” VAT incurred on company assets (e.g. immovable property, vehicles or hardware) in their advantage by x/5 or x/15. During the calendar year 2014, this historical VAT credit needs to be offset against the VAT due. In 2015, the balance amount can actually be recovered.
What steps can already be taken?
The administrative circular letter provides for an answer to quite a lot of general and sector specific questions (e.g. regarding the insurance industry) in relation to the abolishment of the VAT exemption for lawyer services as per 31 December 2013. Other issues, such as the reconciliation between the VAT authorities’ right to inspection and the lawyer’s duty to safeguard his professional secrecy will be regulated separately.
Lawyers will have to assess their personal VAT status and that of their law firm/association thoroughly, adjust their accounting and invoicing system, prepare for their limited or extensive VAT compliance obligations, map the status of their client files and proceed with invoicing (when appropriate), taking into account the complex transitional and anti-abuse measures.
Should you have any further question or require a personal advice with respect to the impact of these rules on your company, please contact your usual contact person at BDO or you may send an email to [email protected] for the attention of one of the members of the Competence Center VAT:
- Erwin Boumans, 02/778.01.00
- Pascal Dauw, 09/210.54.10
- Kaatje Bondewel, 02/778.01.00
- Brigitte Braeckmans, 03/230.58.40
- Joëlle Teuwen, 081/ 20 87 87
Visit our website regularly to be informed on the latest updates