Foreword: This blog is more suited for freelancers living in Belgium because some of the terms and concepts mentioned here may not apply in your country as of July 2023.
After I started freelancing, I opted for VAT exemption. It means you don't have to include VAT taxes on your invoices and send them to your clients. At first, I thought it was nice for having to deal with less administrative work. Unfortunately, after a long time, I realized it was completely the opposite. Especially when my clients and suppliers can be from anywhere across the world. So in this blog, you will discover why VAT exemption can be troublesome if you, as a Belgian citizen working internationally, are providing and purchasing services across the world outside Belgium. Note that some of the concepts written here can only apply to freelancers in Belgium. So terms like "Special VAT return" may not exist in your country.
Special VAT return
If you, as a self-employed professional, have bought a service from a supplier within any EU country outside Belgium, you may notice that they didn't mention VAT on the invoice. This is because you, as a company, are registered in a different EU state, and somewhere in the account settings of the app/website from where the invoice came from, you filled in your VAT number. The supplier will expect you to handle VAT taxes yourself. This is called a VAT reverse charge. And because of that, you will have to submit a special VAT return (bijzondere btw-aangifte in Dutch). As an international who can work from anywhere across the world, e.g., a web designer buying digital services, this scenario comes up frequently, making your administration a hassle. Most people would recommend you to hire an accountant, which is understandable, but accountants will increase the fee for filling in every special VAT return, making it more expensive than it normally should be.
In Belgium, submitting special VAT returns is strongly discouraged. You can avoid this by contacting the support team of the service you've bought and say that you are exempted from VAT, and they should correct the invoice by including the VAT tax anyway, just like they do for private individuals. This process can take a long time, especially when you have multiple international suppliers, and there is a possibility that they can deny your request. If contacting them is not possible, then you have no choice but to submit special VAT returns.
It is important to note that the IRS is extremely strict about this. In Belgium, you might receive fines starting from €1000 for not submitting special VAT returns on time. What makes it more annoying is that you will have to submit a new VAT return for every quarter for every intra-community purchase.
Everything is more expensive
While you don't include VAT tax for your clients, most of them do charge you with it. The rule for freelancers who opted for VAT exemption is that you cannot reclaim it. This makes everything more expensive for you. Additionally, your quotes without VAT tax might be less appealing to your clients who are VAT-liable. They prefer an invoice with VAT tax so they can reclaim it later on.
VAT-liable at some point
VAT exemption can only be requested by professionals who have an income less than €25k a year. This income threshold may be low for most freelancers. It might be reasonable for starters. However, at some point later on, as your income increases, you will eventually reach the threshold and be obliged to transition to being VAT-liable.
Given the points mentioned above, you might come to the realization that opting for VAT exemption might not be worth it if you work on an international basis and have suppliers from anywhere across the world. You will have to submit multiple special VAT returns frequently, which can take a long time and might come with a risk of fines. Even if you work part-time, there is nothing wrong with being a VAT-liable professional, as this is the default setting recommended for freelancers in Belgium anyway.