VAT exemption as international not worth it

This blog is more suitable for freelancers residing in Belgium as some of the terms and concepts mentioned may not be applicable in your country.

After I started freelancing, I opted for VAT exemption. This means you do not need to include VAT tax on your invoices and send them to your clients. At first, I thought it was nice to have less administrative work. Unfortunately, over time, I realized it was exactly the opposite. Especially since my clients and suppliers can come from anywhere in the world. So in this blog, you will discover why VAT exemption can be disadvantageous if you are a Belgian citizen working internationally providing and purchasing services worldwide outside Belgium. Note that some of the concepts mentioned here may only be applicable to freelancers in Belgium. I have very little knowledge about corporations. So terms like 'special VAT return' may not be applicable in your country.

Special VAT Return

When you, as a self-employed professional, purchase a service from a supplier within another EU country outside Belgium, you will notice that the supplier does not mention VAT on the invoice. This is because your company is registered in another EU country, and somewhere in the account settings of the app/website where the invoice comes from, you have filled in your VAT number. The supplier expects you to handle the VAT tax yourself. This is called VAT reverse charge. As a result, you are obliged to file a special VAT return. As an international freelancer who can work anywhere in the world, for example, a web designer who buys digital services, this scenario often occurs, making your administration more complicated. Most people would advise you to hire an accountant, which is understandable, but most accountants will increase the costs for each submitted special VAT return.

In Belgium, submitting special VAT returns is strongly discouraged. You can avoid them by contacting the support team of the purchased service and mentioning that you are exempt from VAT. They should rectify the invoice by including the VAT tax anyway. This way, you receive an invoice with VAT, like a private individual. This process can take a long time, especially if you have multiple international suppliers. It is possible that they may refuse your request. If no alternative is possible, you have no choice but to submit special VAT returns.

It is important to note that the tax authorities are very strict about this. In Belgium, you can receive fines starting from €1000 if you do not submit special VAT returns on time. What makes it even more annoying is that for each quarter, for each intra-Community acquisition, you must file a new VAT return.

Everything becomes more expensive

Although you do not charge VAT to your clients, most of them do charge VAT to you. The rule for freelancers who have opted for VAT exemption is that you cannot reclaim this VAT. This makes everything more expensive for you. Additionally, your invoices without VAT may be less appealing to clients who are VAT liable. They prefer an invoice with VAT, so they can reclaim it later.

Switching to VAT liable

VAT exemption can only be requested by professionals who have an income of less than €25,000 per year. This income threshold can be low for most freelancers. For starters, it usually poses no problem. However, at some point, you will reach the threshold and be obliged to switch to VAT liable if you take your self-employed work seriously.

Given the points mentioned earlier, you may come to the conclusion that it is not worth opting for VAT exemption if you work internationally and have suppliers from all over the world. You will have to regularly submit multiple special VAT returns, which can come with the risk of fines. Even if you work part-time, I still recommend starting as VAT liable since this is the default setting for self-employed individuals in Belgium and has no negative consequences if you handle your work correctly.