VAT rate: high and low
VAT stands for "Value Added Tax" and is an indirect tax applied to most goods and services. The VAT system in the Netherlands is made up of several rates, of which the 21% rate is the highest. In addition to the high VAT rate, there is also a low VAT rate of 9%. Read in the wiki article VAT rate for the Netherlands more about the other options of VAT.
High VAT rate
The high VAT rate of 21% is the standard rate within the Dutch VAT system. This rate is applied to sales of goods and services not covered by the lower or other VAT options. The high VAT rate of 21% is applied to many goods and services. These include, for example:
- Luxury goods such as jewelry, electronics, and clothing.
- Many services, including consulting, web design, and repairs.
- Non-food items in supermarkets, such as household items.
- Fuel and alcoholic beverages.
Imagine Anna has a one-person business dealing in electronics. She purchases smartphones from suppliers and then sells them to consumers. Since smartphones fall under luxury goods, Anna is required to charge the high VAT rate of 21% to her customers.
When Anna sells a smartphone for €500 excluding VAT, she will do the following. She calculates the VAT: 21% of €500 = €105. She adds the VAT to the selling price: €500 + €105 = €605. Anna will end up having to pay €105 in VAT to the Dutch Belastingdienst for her income with a high VAT rate of 21%.
Low VAT rate
The low VAT rate of 9% is a tax rate applied to certain goods and services in the Netherlands. It is a reduced rate compared to the standard VAT rate of 21%. This lower VAT rate relates to products and services that are considered basic necessities. These include, for example:
- Groceries, water, milk, eggs, bread, vegetables, fruits, meat and fish.
- Printed books, newspapers and magazines.
- Medicines prescribed by a physician
- Art and antiques.
- Cleaning and maintenance services.
- Culture and recreation.
Note that sometimes distinctions are made between certain products and services and the low 9% VAT rate does not always apply to the above products and services. For example, ready-made meals and digital publications fall under the standard 21% VAT rate.
Let's look at an example of a one-person business called "Bakery Tasty" to see how the 9% VAT rate is applied. Imagine that this bakery primarily offers bread.
When Bakery Tasty sells bread, the 9% VAT rate is applied to the selling price. Let's say a single bread is sold for €2.50 excluding VAT. The VAT is calculated as 9% of €2.50, which amounts to €0.225. The total amount the customer pays for 10 loaves of bread, including VAT, would then be € 25 + € 02.25 = € 27.25. Bakery Smakelijk must ultimately pay € 2.25 in VAT to the Dutch Belastingdienst for their income with a low VAT rate of 9%.