In principle, when goods are imported into Belgium, import VAT is due. It has to be paid to the Belgian customs authorities at the moment the goods cross the border. Input VAT can be recovered afterwards through the importer’s Belgian VAT return, but it can take up to 6 months. This constitutes a significant pre-financing of import VAT at a time when cash is paramount for running a business.
Import license avoids cash flow implications
To avoid this adverse cash flow impact, a taxpayer can apply for an import license if certain conditions are met. This license is often used by companies importing larger volumes of goods. It allows the company to pay the import VAT through the periodic VAT return and to immediately report it as deductible VAT in the same return. As a consequence, through this so-called reverse charge mechanism, the importation generates no VAT cash flow effect.
The only disadvantage of the import license is the cash deposit which needs to be paid when applying for it, equal to one-twenty-fourths of the VAT due over one calendar year. The deposit must be revised annually by 20 April, based on the import VAT reported over the previous calendar year.
Deposit condition to be abolished
The government now wants to abolish the cash deposit to mitigate the competitive disadvantage suffered by Belgian harbors. In the Netherlands, for example, no deposit is required to obtain an import license, which makes Dutch harbors more attractive from a VAT perspective. Although the decision to abolish the cash deposit in the near future has been taken by the Belgian government, the practicalities are still unknown. To date, there is no specific timing on when companies will be able to apply for an import license without needing to pay a cash deposit upfront. Nor are there any details available on whether existing cash deposits will be repaid immediately or gradually over time.
Either way, the new measure will give breathing room for companies importing large volumes of goods into Belgium. Most will agree that in difficult financial times when cash is king, measures like this are more than welcome.