Correction of VAT deduction (adjustment) on services, no longer only on goods and immovable property

The VAT on the purchase of goods and services must always be deducted immediately and in full. However, the deduction of VAT is not always final. In certain situations, the actual use must be tracked and as a result corrections to the VAT deduction may be necessary. These corrections are also known as the adjustment scheme.

The adjustment scheme applies to the purchase of movable property that can be depreciated and immovable property. In the case of movable property, the VAT deduction must be followed for a total of 5 years and the VAT deduction in the case of immovable property must be followed for a total of 10 years. If, during these periods, the use of the goods changes (from VAT-taxed use to VAT-exempt use or vice versa), part of the VAT deduction must be corrected (adjusted). Currently, this is not the case with services. This leads to the special situation that the VAT deduction of (for example) an office desk with a purchase value of € 1,000 must be corrected (adjusted) in the event of a change in use, but the VAT deduction on a software package of € 5,000,000 must not. The difference is that software qualifies as a service. This also applies to a (major) renovation of a building. Suppose you convert an old office building into apartments and invest € 10,000,000 for it, then this renovation usually qualifies as a service. The VAT deduction on this investment (€2,100,000) cannot be corrected later if the use of the property changes. In other words, if the property is used as a VAT-taxed short-stay rental after renovation, the VAT will be fully deductible. If, two years later, the property is rented out fully VAT-exempt, the VAT deduction cannot be corrected because the adjustment scheme does not apply to services. On the basis of a new bill, a correction to the VAT deduction for services is possible The bill relates to services to immovable property only and therefore not to all services.

As it stands, from 1 January 2026 it will be possible to correct (adjust) the VAT deduction on services to immovable property. A first draft bill for this purpose is being prepared. On the basis of an internet consultation,  one can comment on this bill. The internet consultation runs until 2 April 2024.

The main features of the bill are:

• Limited to real estate services
• A threshold of € 30,000
• VAT deduction can be adjusted in a period of 5 years

Furthermore, we note that entrepreneurs need to get started with the administrative set-up to make these services, subject to adjustments, ‘visible’ in the administration. In addition, these services must be attributable to the year of purchase/use and the following 4 years.

It is expected that the bill will be adopted this year (possibly after some adjustments) and will be included in the Dutch VAT Act on 1 January 2025 with a transition period of 1 year. In fact, the scheme will then enter into force on 1 January 2026.

If you have any questions about this topic or if you would like to discuss the topic further, please do not hesitate to contact us at info@vatpartners.com