Stricter rules for VAT deduction on goods free of charge

Stricter rules for VAT deduction on goods free of charge

09 June 2017

The Belgian VAT Authorities have published a Circular letter (2017/C/32) with the purpose of updating the VAT rules on samples, promotional items and occasional gifts. In addition, the VAT rules will be aligned, where necessary, with the corporate income tax rules. The Circular contains a number of clarifications and, in particular, two major restrictions on the number of commercial or occasional gifts that can be distributed annually without compromising its right to input VAT deduction.

The Circular came into effect from the date of publication, 29 May 2017.

Self-supply

Business assets which the VAT payer applies for the disposal free of charge qualify as a so-called ‘self-supply’. In case of a self-supply, the VAT payer needs to account for the VAT, provided that the input VAT deduction had initially been claimed (wholly or partly).

Exceptions

Nevertheless, there are some important exceptions to this rule. For example, if certain conditions are met, the VAT on the purchase/cost price related to the free supply of commercial samples, low value commercial gifts, promotional items, occasional gifts for staff and their children, and donations to victims of disasters, food banks, local governments and charitable institutions remains deductible and no 'self-supply' will accur. The Circular contains an overview of these terms.

Novelties / restrictions

The VAT on the purchase of commercial gifts (e.g. a bottle of wine or champagne as a year-end gift for a supplier or customer) and occasional gifts for staff and their children (e.g. Saint Nicholas or New Year's gifts) is deductible if the value of these gifts is less than 50 euro (excl. VAT).

The novelty is that the VAT is deductible only for a single commercial or occasional gift per calendar year and per beneficiary. If in one calendar year multiple gifts with a value lower than 50 euros are given to the same beneficiary, then the VAT deduction only applies to one of these gifts. This requires a careful follow-up by the taxpayer.

In addition, the Circular expressly states that "single purpose vouchers" are also to be considered a commercial or occasional gift if the conditions are met, even if the underlying product of the voucher is a service (e.g. access to a wellness or cinema ticket).

Contact

Questions regarding this subject can be addressed to your regular BDO contact or you can send an e-mail to [email protected] for the attention of one of the members of our VAT team: