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VAT outside EU versus exempted VAT

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Invoicing to a non EU client without VAT is different from invoicing turnover that is exempted from VAT. For the one you are regarded a VAT entrepreneur for the other you are not, what is the difference?

The difference is in the reclaimable VAT. Having clients outside the EU, makes you invoice them at no VAT. The VAT you paid on costs you can fully deduct. Providing a service exempted from VAT, then no VAT is charged to any client, regardless where they are situated. VAT paid on costs you cannot reclaim. If you provide both VAT services and VAT exempted services, the reclaim of VAT on costs is done pro rata. Please make this calculation while filing the VAT return, every time.

What services can be exempted from VAT?. A writer, journalists. But if the writer helps you with the text for your brochure, website, then it is subject to VAT. The service has then switched from being a writer to being a more advertising service. That is an example how you can have the two kinds of turnover that split the reclaimable VAT.

In the VAT legislation there are more VAT exempted situations and you will encounter them immediately when you have started your business and you register yourself with the tax office.

When you exercise a hobby, then the turnover is also not subject to VAT, neither can you reclaim any VAT on the costs. Your activity is regarded a hobby when it is clear from the start that it will never be regarded as a source of income. In the situation that this was not clear at the start, but during the years the facts state that no profit was made, nor will be made, the activity will become a hobby at that time. It is crucial to come to this conclusion at a reasonable moment, because when it is already clear the activity will not succeed and there is a VAT audit, you need to pay back the claimed VAT amounts. What is reasonable is up for debate.

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