New Belgian circular letter on the VAT implications of credit insurance
BelgiumPreviously, for credit insurance covering the price of a supply including VAT, in so far as the credit insurer was subrogated in the rights of the insured supplier, the insurer was entitled to exercise the VAT refund right generated by the loss of all or part of the price of the underlying VAT taxable supply. This applied even if the insured supplier received only partial indemnification from the insurer. On the other hand, for credit insurance covering only the price excluding VAT, the VAT refund right remained with the insured supplier.
As from 1 January 2025, the Belgian tax authorities consider that no loss of all or part of the price of the underlying VAT taxable supply occurs to the extent the shortfall is indemnified by a credit insurer. For the remaining loss, the VAT refund right may only be exercised by the insured supplier. This is subject to the insured supplier issuing a (partial) credit note to its purchaser. Depending on the extent of the insurance coverage, the amount of refundable VAT may need to be computed on a VAT inclusive basis.
Key takeaway
Evidently, credit insurers should review the impact of this development on their pricing and business model.
Insured suppliers must put a process in place to claim a VAT refund to the appropriate extent on the indemnified receivables, including issuing (partial) credit notes and properly computing the refundable VAT.
