Diverse VAT changes to the application of the actual use method: an overview

The general pro rata figure

The right to deduct VAT for mixed taxable persons is ascertained in principle on the general pro rata figure. This is the number of transactions with the right to deduct VAT in relation to the amount of all the transactions of the economic activity (with and without the right to deduct). The result of this calculation determines what proportion of VAT can be deducted.

Actual use

As well as the application of the general pro rata figure, the rule about actual use can also be applied. In order to ascertain the actual use, and consequently the VAT deduction, for mixed taxable persons, account has to be taken of the VAT levied on goods and services that:

• Are used exclusively for the taxable sector
• Are used exclusively for the non-taxable sector
• Are used for both the taxable as the non-taxable sector.

For the business to apply the actual use method previously, an application had to be submitted to the FPS Finance.

Changes in 2023

From 1st January 2023, in order to apply the actual use method, prior notification by electronic means will suffice. This should be done via form E604A (Application for VAT Identification) or E604B (Change of VAT Identification).

The taxable person receives just an acknowledgement of receipt after this notification, but it is enough to apply the VAT deduction based on actual use. However, the VAT authority retains its right to dispute or question the method used until 31st December of the following year of notification.

Application of the actual use method on or before 31st December 2022

For businesses already applying the principle of deduction based on actual use on or before 31st December 2022, this notification must be made by 30th June 2023.

Application of actual use method on or after 1st January 2023

The principle is different for businesses which were not applying the principle of deduction based on actual use on or before 31st December 2022.

In this situation, the notification must be made no later than the end of the first return period of the current calendar year, or the first return period when the activity starts or changes. It is effective from 1st January of the current financial year or from the first day of the return period following the commencement or change of activity. We provide an example below.

Company X (which does its VAT return quarterly) was set up on 26th November 2022. It wants to start applying the actual use method from 1st January 2023. In order to apply the actual use, the company has to give notice before 31st March (i.e. no later than the end of the first return period of the current calendar year).

Notification of additional details by means of the VAT return

As well as this prior notification, the business must also provide certain details in its VAT return. A tolerance will be introduced for 2023. You must include the details in respect of actual use in the VAT return for the first quarter of 2024. They must be provided no later than 20th April 2024. Those who submit their VAT returns once a month must ensure that this notification is included in one of the first three returns for 2024. In effect it means that the details must also be supplied before 20th April 2024. This also applies to taxpayers who become mixed taxpayers in 2023.

For taxpayers who were already applying the deduction based on actual use on or before 31st
December 2022, the notification must be included in the VAT return for the first quarter of 2024 (to be submitted no later than 20th April 2024) or for the month of May (to be submitted no later than 20th June 2024).

The following details must be provided:

• The final general pro rata figure of the previous calendar year
• The breakdown, as a percentage, of the VAT charged to the taxable person that:
  • Is used exclusively for the business sections whose activities are entitled to a full right of deduction
  • Is used exclusively for the business sections whose activities are not entitled to a full right of deduction
  • Is used for the business sections whose activities are entitled to a full right of deduction and business sections whose activities are not entitled to a full right of deduction.

Consequences of overdue fulfilment of obligations

If it is subsequently found that the aforementioned obligations were not fulfilled on time, the taxable person loses the option of applying actual use in that calendar year. The application of the actual use method is then only possible from 1st January of the following calendar year.

Transition to another VAT regime

It is important to note that a business cannot switch to using the general pro rata figure method before 31st December of the third year after the date of effect of the notification.

If you have any questions about the rule on actual use and its effect, be sure to get in touch with our experts.