Government and VAT
As a government agency, you both impose and pay taxes. VAT is a point for discussion everywhere in your organisation. The question is always whether income is taxable with VAT or not, and if the VAT on purchases is deductible. In addition, municipalities and provinces are also concerned with the VAT compensation fund. We help you understand the VAT processes and embed VAT in your business processes.
In the Netherlands, VAT is an important resource for the treasury. Municipalities, provinces, water boards, ministries and all other (local) public bodies contribute to it in two ways. Firstly, because, your organisation can be viewed as an entrepreneur for VAT and must pay VAT over its realised sales. Secondly, your organisation pays VAT on purchases and this VAT is only deductible to a limited extent. For municipalities and provinces, VAT plays an even greater role due to the VAT compensation fund.
Labelling of the activities
Most of the activities of governments are statutory obligations. In addition, governments carry out activities that take place on the market. Consider the supply of land and the rental of cultural accommodation. Certainly, at the level of local government, such as a municipality or province, we see an increasing level of market activity. And that has consequences for VAT.
It must be established for all activities whether you carry them out as government or a business. This qualification determines whether or not you owe VAT to the tax authorities as well as whether VAT on purchases is deductible, compensable (BCF) or will increase costs. This determination is included in a labelling: a list in which your activities are specified and are assigned the correct VAT qualification. This labelling provides the basis for your VAT records. Obviously, it is important to periodically review this labelling to note changes in activities, legislation and regulations. This can be incorporated perfectly into a Tax Control Framework.
Co-operation between and with governments
Municipalities are working together with other municipalities and (market) parties with increasing frequency. Here, the VAT aspects must be properly assessed. This is because, in many cases, tax can have a cost-increasing effect, making co-operation less financially favourable. We therefore recommend always doing an advance fiscal assessment of co-operation agreements. Contact us if you would like to discuss this.