VAT debts in Belgium: payment plans, disputes and directors' liability

VAT debts are among the most common causes of financial difficulty for self-employed people and companies in Belgium. The VAT you receive from your customers is not turnover but money you collect on behalf of the State; if you use it to fund your cash flow, arrears build up quickly. The Federal Public Service Finance (FOD Financiën / SPF Finances) has powerful recovery tools. This article explains how to request a payment plan, how to dispute a VAT debt and when a director can become personally liable.

How do VAT debts arise?

A VAT debt arises when the VAT due is not paid, or not paid on time. This may result from cash-flow problems, customers who do not pay while the VAT on their invoices is already due, accounting errors, a late return or an audit that leads to a correction. Late-payment interest and administrative fines are also charged on overdue VAT.

After a VAT audit

After an audit, the tax authorities present their findings to you, often with a proposed correction (regularisation) that you can sign. Do not sign without a thorough review: by signing, you generally accept the amounts claimed and lose part of your defence. If you disagree, say so in writing and with reasons within the time limit the authorities give you, and keep every document that supports your position. At this stage, a lawyer or tax adviser can often still put a great deal right.

Recovery of VAT debts: the authorities’ tools

• The writ of execution: the authorities can issue a writ of execution (dwangbevel / contrainte), which is an enforceable title. They do not need a court judgment for this.
• Attachment: on the basis of the writ, your movable and immovable property can be attached. For assets held by third parties, such as your bank or your customers, a registered letter to that third party is often enough (simplified third-party attachment).
• Set-off: refunds you are entitled to, such as a VAT credit or an income tax refund, can be set off against your debt.
• Statutory mortgage: the authorities can register a statutory mortgage on your real estate, which makes a sale or new financing more difficult.
• Preferential right: in a bankruptcy, the tax authorities have a general preferential right (privilege) for VAT debts, so they are paid before ordinary unsecured creditors.

Requesting a payment plan

The recovery departments of the FPS Finance grant payment plans for VAT debts under certain conditions. They generally expect you to declare and pay current VAT correctly, to document your financial situation and to propose a realistic plan. Apply as early as possible, preferably before any writ of execution or attachment.

As a rule, there is no right to a payment plan, so submit a well-substantiated proposal. A plan you cannot honour weakens your position: if new arrears arise, recovery usually resumes. Late-payment interest also continues to run, in principle, during a payment plan.

Disputing a VAT debt

If you disagree with a VAT debt established by the authorities, for example after an audit, you must first lodge an administrative appeal if the law provides for one against that decision (Article 1385undecies of the Judicial Code). Only then can you bring the case before the court of first instance (rechtbank van eerste aanleg / tribunal de première instance): either when the authorities have not decided within six months of receiving your appeal, or within three months of notification of their decision, failing which your right lapses. These time limits are strict; have it checked straight away whether such an appeal exists for your VAT dispute.

You can also turn to the Tax Mediation Service (Fiscale Bemiddelingsdienst / Service de conciliation fiscale), which can mediate between you and the authorities. Mediation does not, however, suspend the appeal deadlines. For administrative fines, you can also ask for remission or reduction, for example if you acted in good faith or if the fine is disproportionate to the offence.

Preventing VAT debts

The best VAT debt is the one that never arises. Set aside the VAT you receive in a separate account, calculate each month what you will owe and do not use those funds to pay other costs. Monitor your outstanding customer invoices closely, because you often pay the VAT before your customer has paid you. And always file your returns on time, even if you cannot pay straight away: a late return triggers additional fines and makes a payment plan harder to obtain.

Directors’ personal liability for VAT debts

Directors of a company can be held jointly and severally liable for VAT the company failed to pay, if that non-payment is due to a fault on the director’s part. In the case of repeated non-payment, that fault is in principle presumed. Repeated non-payment means failing to pay, within a period of one year, at least two VAT debts that have fallen due for a company filing quarterly returns, or at least three for a company filing monthly returns (Article 93undecies C of the VAT Code).

The presumption does not apply if the non-payment results from financial difficulties that led to judicial reorganisation, bankruptcy or judicial dissolution; the authorities must then prove a fault themselves. Before suing a director, the authorities must warn the director by registered letter and give him or her the opportunity to remedy the failure or to show that it is not due to his or her fault: the claim is admissible only if it is brought after a period of one month from that warning has expired. A similar regime applies to professional withholding tax (bedrijfsvoorheffing / précompte professionnel).

So it is not the late return as such, but repeated non-payment that gives rise to the presumption of fault. Responding promptly to a warning and consulting the authorities early therefore remain essential.

Social security debts

Unpaid social security contributions are also a major risk. The National Social Security Office (RSZ / ONSS) has its own recovery tools and likewise enjoys a general preferential right in a bankruptcy. In certain cases directors can be declared jointly and severally liable, in particular if, in the five years before the bankruptcy, they were involved in at least two other bankruptcies or liquidations of businesses with unpaid social security contributions (Article XX.226 of the Code of Economic Law).

Frequently asked questions

Can I reclaim the VAT on invoices my customers have not paid?

Yes, under certain conditions. If an invoice remains wholly or partly unpaid and the loss of the claim is certain, you can recover the VAT on it (Article 77(1)(7) of the VAT Code). If your customer goes bankrupt, that right arises on the date of the bankruptcy judgment; in a judicial reorganisation, as a rule on the date the court approves the plan or of the judgment recording the amicable settlement. Recording the debt as doubtful is not enough in itself, and the tax authorities in principle treat a write-off agreed outside those procedures as a voluntary waiver. Coordinate this with your accountant.

Can the tax authorities seize my personal income?

If you are the VAT-registered person yourself, as with a sole proprietorship, the tax authorities can also attach your personal assets, although certain income and assets remain exempt from attachment within the statutory limits. For the debts of a limited liability company, such as a BV (SRL) or NV (SA), the tax authorities can only pursue your personal assets if you are held liable as a director. Partners in a general partnership (VOF / SNC) and general partners in a limited partnership (CommV / SComm), by contrast, have unlimited liability for the company’s debts.

What should I do if I receive a writ of execution or an attachment?

Act immediately: a payment plan can often still be agreed. Disputes about enforcement, such as an irregular attachment, are as a rule a matter for the attachment judge (beslagrechter / juge des saisies). The VAT debt itself is disputed through the procedure described above. For more on your defence, read our article on attachment.

Am I still liable after resigning as a director?

Resigning does not erase liability for faults committed during your term of office. Former directors can also be pursued for VAT the company failed to pay while they were in office. Also make sure your resignation is published in good time in the annexes to the Belgian Official Gazette (Belgisch Staatsblad / Moniteur belge), so that it can be relied on against third parties.

What if my business can no longer bear its VAT debts?

Then you need to look beyond a payment plan: an amicable agreement, judicial reorganisation or, if the business is no longer viable, a timely bankruptcy filing. That filing must be made within one month of the cessation of payments. Anyone who waits too long runs additional risks as a director.

Novex Advocaten can help

We advise business owners and directors on VAT and social security debts, negotiate payment plans, handle disputes and defend directors who are held personally liable. See also our articles on directors’ liability in bankruptcy and on judicial reorganisation.

Call 0484 99 22 72 or email asfour@novexadvocaten.be for a confidential analysis.