Belgium: Election to determine VAT deduction on basis of actual use

Mixed taxable persons can elect, beginning 1 January 2023, to determine their value added (VAT) deduction right on the basis of the actual use that is made of the goods or services received.

Mixed taxable persons generally can determine their VAT deduction right on the basis of a general pro rata method or on the basis of the actual use that is made of the goods or services received. Up until now, the option to determine VAT deduction on the basis of 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 actual use. On the other hand, the VAT authorities could also impose the actual use method on the taxpayer.

Beginning 1 January 2023, mixed taxable persons may elect to determine VAT deduction on the basis of actual use by electronic notification 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 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 1 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 that VAT return period.
• Mixed taxpayers that already apply the actual use method on 31 December 2022 and that wish to continue in this way also have to confirm their choice via an electronic notification to be performed before 1 July 2023.

The notification to deduct the VAT on the basis of actual use is valid for an indefinite period of time. In addition, it is not possible to shift back to the general pro rata method until 31 December of the third year following the notification.

The VAT authorities can oppose the taxpayer’s application of the actual use method or the criteria used by the taxpayer in the framework of that VAT deduction method. Any such opposition must be communicated to the taxpayer at the latest by 31 December of the year following the year in which the initial notification by the taxpayer became effective. In addition, 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).

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):

• 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

Read a December 2022 report prepared by the KPMG member firm in Belgium