Establishing a VAT group

In Belgium, the VAT group has been in place since 2007, and since then it has become a frequently applied construction. If two or more companies are linked and satisfy the applicable conditions, they can form a VAT group. This group acts as a single and indivisible entity with regard to the filing of VAT returns. The VAT group, for example, exercises the right to deduct VAT for all its members.

Also, members can trade among themselves without VAT being applicable to these actions. This enables the members of the group to avoid pre-financing of VAT (a key cost item), which can be an important element in optimising the entire group’s cash position.

A VAT group can be established by filling in Form 606A, including the various annexes, to demonstrate that the group satisfies the three conditions for establishment:

1. financial link;
2. organisational link; and
3. economic link.

One of the group’s members is appointed as its representative.

A classic example illustrating the usefulness of a VAT group can be found in the construction of buildings and the subsequent leasing of the real estate (progression from an asset management company to an operational company). The right to deduct VAT in regard of newly-built buildings remains intact, despite the fact that the real estate is leased to another legal person.

We examine whether establishing a VAT group could be advantageous in your situation. Next, we take you through all the relevant administrative steps.

The VAT group has recently received media attention on account of the view taken by the Belgian tax administration that directors’ fees must always be subject to VAT (since 1 January 2016). Prior to this date, a tolerant attitude had been adopted in which the tax administration permitted a choice with regard to the director’s activities of legal entities in other companies.

As a result, taxpayers who had previously been exempt from VAT may soon be faced with having to pay considerable VAT costs. For example: an insurance agency pays a director’s fee to a management company. This could be circumvented by establishing a VAT group! This applies equally to other parties subject to payment of VAT who have been declared exempt on the basis of Article 44, such as doctors, hospitals, etc.