16 May Fiscal unity for VAT
Entrepreneurs with multiple firms may find themselves spending a lot of time of filing VAT tax returns. Not only is this very time consuming, but it may also hinders the entrepreneur to invest his or her money on something else. In this case, a fiscal unity can be worthwhile option. Fiscal unities often consist of a parent company and one or more subsidiaries. So, what will change for the firms that form a fiscal unity regarding the VAT? To begin with, all entities will be treated as a single organization when it comes to VAT tax returns. One entity, for example the parent company, has the possibility to be responsible for filing the VAT tax returns for every entity of that fiscal unity. On request, the individual filing of VAT tax returns is also possible.
Secondly, fiscal unities do not have to pay VAT over the distribution of goods and services between the entities within the fiscal unity. In other words, it is no longer necessary for the entities to charge each other with VAT. This could be beneficial to firms as there is more financial resources left to invest in something else. Please note that this would mean that deduction of input tax for the distribution of goods and services is not possible anymore.
In order to form a fiscal unity, companies need to fulfill certain conditions:
A fiscal unity can be formed when firms are interconnected with each other in financial, organizational, and economical terms. Firms are financially interconnected when one party holds over 50% of the shares of each of the firms. Organizational interconnection occurs when firms are under the same authority. This does not necessarily mean that one party, whether this is an individual or a group, is in charge of the company. It rather means that the management of each of the firms holds influential power over the other firms. There is economical interconnection between firms in two scenarios: (1) when the firms have the same economic goal. An example is that the firms share a mutual customer base. (2) When one firm is responsible for over 50% of the complementary activities for the other firm. An example is that one firm delivers the products that another one sells.
A fiscal unity can be formed when different entities are working closely with each other in terms of finance, organization, and economics. Every type of legal form in the Netherlands can form a fiscal unity. However, at least one entity must be a BV (besloten vennootschap), CV (commanditaire vennootschap), an association or a foundation. It is not possible to form a fiscal unity with only natural persons, such as eenmanszaak or vof (vennootschap onder firma).
Establishment in the Netherlands
The third condition is that the firms are established in the Netherlands. Foreign organizations without a permanent establishment in the Netherlands are excluded for this regulation.
A consideration that deserves attention is that all firms of fiscal unity are liable for the entire VAT debt, if there is any. In other words, a small subsidiary with VAT debt could lead to problems to other subsidiaries as well as the parent company. It is recommended to consider the above mentioned points before taking any steps.
If you are interested in the fiscal unity for VAT or have questions about this matter, please feel free to contact us.