Good news: scheme simplified!
Until recently, you could only reclaim VAT on these so-called irrecoverable receivables through a complicated scheme. Through a cumbersome procedure, you as a supplier had to make it sufficiently plausible in writing (!) to the tax inspector that your customer had not paid an invoice and would not do so again. But, you can already feel it coming... This specific VAT scheme for bad debts was not so long ago significantly simplified. Thank goodness!
Key changes at a glance
- Under the new scheme, it is no longer necessary to file a separate application for a VAT refund on bad debts. The VAT on invoices that are not going to be paid, can be reclaimed in the regular VAT return.
- In practice, it proved difficult to make it plausible that an invoice will no longer be paid. Therefore, the new bad debt rule stipulates that for VAT purposes, an invoice is deemed irrecoverable no later than one year from the time the payment became due. In practice, this means that VAT can be reclaimed one year after the expiry of the payment period. If no payment period has been agreed, the statutory payment period of 30 days applies.
- The same applies to invoices that remain partially unpaid; one year after this becomes due, VAT can be reclaimed under conditions. It does not have to be certain at that time that this invoice will definitely not be paid. If the invoice is later paid (in full), the reclaimed VAT must still be paid by you to the tax authorities.
- As with most VAT schemes, this particular scheme is subject to a number of exceptions, for example in the case of factoring or issuing credit invoices. It is therefore important also with the new scheme to critically examine for each unpaid invoice whether VAT can be reclaimed and under what conditions.
Conclusion and advice
The conclusion of this new scheme is simple: for you as an entrepreneur, it is a lot easier become to reclaim VAT already paid on bad debts. Our advice is to carefully monitor the one-year deadline and then immediately Take action towards the tax authorities. Do take a critical look at each invoice to see whether the VAT can actually be reclaimed.
In doing so, did you help needed? Our partner Taxperience will be happy to assist you with issues relating to VAT and other tax matters.
