What is VAT?
Learn what VAT is, how it is included in prices, and how it affects what you pay for goods and services.
Across Europe, you pay VAT on most of the things you buy. VAT stands for Value Added Tax. It is included in the price of many products and services, so you pay it as part of your purchase. In this lesson we'll focus on VAT rates in the Netherlands.
What is VAT?
VAT is a type of sales tax, which is applied as a percentage on top of the original price of every good and service purchased by consumers.
This tax must ultimately be paid to the government. The business selling the product or service is responsible for transferring this amount to the tax authorities after the sale.
VAT in the Netherlands (btw)
In the Netherlands, VAT is called btw, short for belasting over de toegevoegde waarde. The standard Dutch VAT rate is 21%. This means 21% is added to the original price of most goods and services. When you buy something in a shop, the price you pay usually includes VAT (btw). The businesses collect the tax and transfer it to the Dutch tax authorities. Some products and services are subject to a lower VAT rate of 9%, such as food, water and medicines. Certain goods and services are exempt from VAT altogether.
Filing a VAT return in the Netherlands
If you are self-employed (zzp’er) or run a business in the Netherlands, filing a VAT return is part of running your business. In Dutch, this is called a btw-aangifte. Businesses must submit a VAT return monthly, quarterly or annually, depending on their situation. As an entrepreneur, you can often deduct the VAT (btw) you have paid on business expenses. For example, VAT paid on purchases for your business can usually be reclaimed.
Fig. 1 How VAT moves through the economy
Takeaways
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VAT is a tax on the sale of goods and services.
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Businesses collect VAT and often pass it on to their customers and later are required to transfer the amount to the government/tax authorities.
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In the Netherlands, VAT is called ‘btw’ and the standard rate is 21%.
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If you are self-employed in the Netherlands, you must file a VAT return (btw-aangifte).
If you're buying a jar of peanut butter in the Netherlands, which costs you €2.85, how much of that amount is VAT?