Save time and money? Apply for a VAT fiscal unity

A VAT fiscal unity (FE VAT) treats affiliated enterprises as a single VAT taxable entity (Art. 7, paragraph 4 of the VAT Act). Advantage: intercompany transactions without VAT, one joint return, no parking money with the Tax and Customs Administration for reciprocally calculated VAT. Conditions: financially, organizationally, and economically connected. No application required — operates automatically upon sufficient interconnectedness. Below: conditions, benefits, and how Karim's holding structure halves his VAT paperwork.

The short answer

• What: affiliated enterprises together constitute a single VAT taxpayer.
• Legal basis: art. 7 paragraph 4 OB Act.
• Conditions: financially, organizationally, and economically intertwined.
• Advantage: intercompany VAT-free, one return, no loss of liquidity.
• No application: takes effect by operation of law — but a court order is useful for certainty.

What is a VAT fiscal unit?

Under the VAT fiscal unity, multiple closely intertwined entrepreneurs—natural persons, private limited companies, foundations—are treated as a single VAT taxable entity. In practice:

• Intercompany supplies and services excluding VAT.
• One joint VAT return for the entire unit.
• One VAT number for the unit (all individual VAT numbers will continue to exist).
• Intercompany transactions have no administrative overhead.

However, under civil law, the BVs remain separate — separate accounting, separate legal personality.

The three interwovens

For a VAT fiscal unit, three cumulative conditions must be met (CJEU case law):

1. Financially intertwined

One party has direct or indirect control over the other — usually through shareholding of ≥ 50%. Often ≥ 95% in practice, but for VAT the threshold is formally lower than for corporate income tax.

2. Organizationally interwoven

Joint management or administration — the same directors, shared administration, joint decision-making. Holding structures often meet these criteria.

3. Economically intertwined

The entities serve substantially the same economic purpose — e.g., one operating company produces what the other sells, or they share customers and markets. Holdings with solely investment objectives may stumble here.

Karim's holding company (liabilities) + operating company (assets, ICT services): likely economically intertwined due to sharing of services and infrastructure. Tax specialist assesses each case individually.

Advantages

1. Intercompany VAT-exempt

No VAT on internal supplies. Example: holding company charges management fees to operating company. Without FE VAT: 21% VAT on both sides (cash flow taxed). With FE VAT: no VAT — administrative simplicity and liquidity advantage.

2. One declaration

Instead of 2-5 separate VAT returns: one joint return. Saves bookkeeper costs, reduces the risk of errors.

3. No late payment tax

For separate BVs: VAT levied, paid, and (after 3 months) reclaimed. Liquidity constraint for young BVs. FE VAT: do not park money.

4. Input tax deduction

For FE VAT, input VAT deduction applies to the entire unit — useful for mixed activities (partly exempt, partly taxable). However, a point to note: the deduction is only valid to the extent that it relates to taxable supplies.

Disadvantages

1. Joint and several liability

Each BV within the group is jointly and severally liable for the VAT debt (Art. 43 Income Tax Act). In the event of bankruptcy of one: the other BVs must still bear the VAT debt.

2. Deduction for mixed activities

If the unit has partially exempt activities (healthcare, education): pro rata calculation — input tax deduction only proportionate to taxable turnover.

3. Accession/withdrawal

In the event of a change in structure (new subsidiary, sale of subsidiary): reassessment of the group and VAT position. Administrative work.

How does the FE VAT arise?

Unlike corporate income tax: FE VAT applies automatically upon sufficient interconnectedness. No application required. However:

• Request a ruling from the Tax and Customs Administration for certainty in advance.
• A fiscal unit number is issued — sometimes separately from individual VAT numbers.
• It can be indicated on invoices that the unit is performing.

Termination of FE VAT

Ends:

• Upon loss of one of the three interweavings.
• Upon dissolution of an entity.
• In the event of a change of legal form or structure.

It is important to inform the Tax and Customs Administration in a timely manner — otherwise the administrative unit will remain in place even though the conditions are no longer met.

Karim's VAT structure

Karim's holding company provides management to the operating company for €100,000 per year. The operating company provides ICT services to clients.

VAT without FE: holding company charges €21,000 VAT on a management fee to the operating company. The operating company pays and claims a refund in the next tax return (3 months later). The money is held by the Tax and Customs Administration for 3 months.

With FE VAT: no VAT on intercompany management fees. Liquidity benefit €21,000 × 3 months = ~€600 in interest costs saved, plus administrative simplicity.

Honest recommendation

For holding structures with an active operating company, FE VAT is almost always advantageous — administrative simplicity, no liquidity constraint on intercompany transactions. For pure holdings (investment only): economic interdependence can be a stumbling block. Have a tax specialist assess whether your structure qualifies, and request a ruling for certainty. In the event of changes (new subsidiary, sale): reassess in a timely manner.

For other topics: VAT return, corporate income tax consolidation and BV taxes.

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