Update rules on VAT rates

At the end of 2022, the government will publish an evaluation of the amended VAT-rate rules. This will indicate how the amended VAT rules will be dealt with. A 0% VAT rate on solar panels will be introduced in anticipation of the evaluation. A plan for the (gradual) introduction of a 0% rate on fruit and vegetables is also expected shortly. Lastly, a change has also been made regarding the place of service for virtual / streamed events.  

New (potential) VAT rate structure

VAT legislation in EU Member States is based on the European VAT Directive. This also applies to the VAT rates: EU Member States are only allowed to introduce VAT rates within a certain scope. As a result of the changed VAT rate rules as of 6 April 2022, it will be possible for EU Member States to introduce an extra low VAT rate. It is not yet known whether the Netherlands will make use of this. At the end of 2022, the government will publish an evaluation of the amended VAT rate rules, indicating how the amended VAT rate rules will be adopted. The diagram below shows the limits within which one or more low rates can be introduced by EU member states.

A 0% VAT rate on solar panels will be introduced in anticipation of the evaluation. A plan for the (gradual) introduction of a 0% rate on fruit and vegetables is also expected shortly.

 Expansion of qualifying goods and services

EU Member States are only allowed to apply lower VAT rates to a limited selection of goods and services included in the VAT Directive. The exhaustive list for reduced VAT rates is expanded form 18 to 29 categories. This mainly takes into account sustainability, digitization and the protection of public health. The following goods and services, among others, are added to the list:

• Pharmaceutical products, including products for the hygienic protection of women and absorbent hygiene products;
• Medical equipment for use in healthcare or for use by people with disabilities. Including: leasing, modification, repair and rental of such goods;
• Transport of persons including luggage;
• Delivery of (electric) bicycles, including rental and repair;
• Live streaming of cultural and sporting events / facilities, including the provision of sports or exercise classes;
• Supply and installation of solar panels on private homes or public buildings;
• Supply of children’s clothing and shoes;
• Legal services relating to employment law disputes and/or within a national legal aid scheme;
• Internet access services;
• Construction and renovation of public buildings;
• Services consisting of repair of household appliances, shoes and leather goods, clothing and household linen (including mending and alteration).

In addition, the option of introducing a reduced / 0% rate for fossil fuels, peat and firewood will be removed from 1 January 2030 for environmental / sustainability reasons. As of 1 January 2032 the same will apply to chemical pesticides and fertilizers.

As noted above, the government will publish an evaluation of the amended VAT rate rules at the end of 2022 indicating how the amended VAT rate rules will be adopted. Also it is expected a 0% VAT rate on solar panels, as well as vegetables / fruits will be implemented.

Place of service

Between the amended VAT rate rules, there is also a “hidden” change with regard to the place where the VAT is due if certain events are presented online or virtually by means of streaming or otherwise.

In summary, the result of the changes is that the place of service for both business and private customers is the place where the same business/private customer is located. This removes the distinction between entrepreneurs and private individuals with regard to the place of service for events. Contrary to the VAT rate rules, this change will only come into effect as of 1 January 2025 and is also mandatory for all EU Member States. Until 1 January 2025, the place of service will be different in certain situations: in accordance with the ruling of C-568/17 ECJ Geelen, the place of service is still the country where the service provider is established.

Importance for practice (in the Netherlands)

The changes mentioned above may also affect you. Apart from the aforementioned 0% VAT rate on fruit, vegetables and solar panels, we will have to wait and see whether and to what extent the Netherlands: (i) will make use of the new VAT rate options; and if so, (ii) which categories will be grouped.

In the Netherlands there is still much discussion about the VAT rates and to which categories the reduced rate, extra reduced rate or zero rate are applied. It is important for entrepreneurs to be aware of this. In the event of a change in Dutch law, they will eventually have to adjust their ERP-systems and their invoices. In addition, existing agreements may need to be reviewed and/or amended.