Belgian chamber approves permanent vat reduction and excise reform on gas and electricity

On March 16, 2023, the Belgian Chamber approved the permanent reduction of VAT on gas and electricity from 21% to 6%. This measure, which takes effect on April 1, 2023, is linked to a significant excise reform. A transitional arrangement is provided. Under the definitive arrangement, there is an impact on non-profit organizations, companies, and professional users. They can no longer benefit from the reduced VAT rate, but are exempted from the new excise duties intended to compensate for the VAT reduction.
Objective and rationale

The new arrangement aims for a structural reform of energy taxation to limit the impact of high energy prices.

On the one hand, the reduced VAT rate for electricity, natural gas used as heating fuel, and heat supplied through district heating networks is made permanent. On the other hand, a special arrangement regarding excise duties is introduced, which should provide more flexibility to modulate the tax burden on the energy bill according to price developments.

The plan is to fully align the scope of the VAT and excise measures from July 2023.

Temporary rule in place

A temporary VAT reduction from 21 to 6% currently applies to the supply of electricity to natural persons under residential contracts (Royal Decree No. 20, Article 1bis). To distinguish 'residential' contracts from 'professional' contracts, electricity suppliers must base themselves on the objective fact of whether or not the customer provides their company enterprise number when concluding the contract.

In contrast to electricity, the reduced VAT rate for natural gas and heat supplied through district heating networks applies to all supplies (regardless of the type of contract) (Royal Decree No. 20, Article 1bis/1).
The temporary VAT reduction would expire on March 31, 2023.

Three-month transitional period

From April 1, 2023, to June 30, 2023, the reduced VAT rate for electricity, gas, and heat will continue to apply in the same manner. For natural gas, the law now explicitly clarifies that the reduced rate only applies when used as heating fuel (and not as motor fuel – see below).

Starting from July 2023, the criterion "non-business use" applies, except for heat.

From July 2023, the VAT reduction for electricity and natural gas will be linked to excise duty legislation. From then on, the 6% VAT rate will only apply to supplies under a contract for "non-business use." The definition of business and non-business use is set out in Article 420, § 5, of the Program Law of December 27, 2004, and is based on the European Energy Taxation Directive.

The company enterprise number is therefore removed as a criterion. This aims to prevent irregularities between VAT and excise duties when applying the permanent VAT reduction. The company number still, however, serves as a presumption for suppliers (see below).

It is important to note that, according to excise duty legislation, the state, regional and local governments, and other public bodies can be considered "non-business users," even if they have provided a company enterprise number to their energy supplier when concluding their energy contract. Without the adjusted VAT criterion, these public bodies would always be charged the standard VAT rate of 21% by energy suppliers for the supply of electricity and natural gas, in addition to a higher excise duty rate.

In this respect, the final arrangement does entail a significant change for non-profit organizations, companies, and professional consumers. For them, the VAT rate on gas will indeed increase from 6% to 21%. On the other hand, government institutions may now benefit from the reduced rate on electricity. Excise duty legislation explicitly states that public bodies are considered non-business users for activities and transactions they carry out in their capacity as a public authority.

Company enterprise number becomes a criterion for heat supply

In contrast to electricity and natural gas, the supply of heat through district heating networks does not fall under excise duty legislation. However, as of July 1, 2023, to apply the reduced VAT rate to these supplies, the condition is that the "natural person" customer has not provided a company enterprise number when concluding the contract.

Recharges excluded from the reduced VAT rate

Recharges are excluded from the reduced VAT rate. This applies, for example, to the pass-through of energy in the context of a rental contract or charges when an electric charging station is used by a third party. Again, reference is made to the alignment with excise legislation. Excise duties are generally due at the time of supply by the energy supplier to the customer (i.e., the person who has concluded the contract with the energy supplier). Any subsequent reinvoicing of energy is not considered a supply within the meaning of the excise legislation.

Thus, the question arises as to how a director who purchases gas and electricity from his (management) company will be treated: will he soon have to pay 21% VAT anyway?

Co-ownerships qualify for the reduced VAT rate

The reduced VAT rate of 6% will, however, be possible for contracts concluded with a co-ownership of apartments, as these contracts generally involve predominantly non-business use.

Mentioning a company number by the customer when concluding the energy contract will therefore not be an obstacle to applying the reduced VAT rate of 6%, provided the customer (cf. Article 420, § 5/1, of the program law of December 27, 2004) reports that there is predominantly non-business use by the end-users.

Excise reform

To finance the VAT reduction, new excise duties on gas and electricity for non-business users will be introduced starting from April 1st. The excise reform comprises the following four measures:

• A new excise duty rate for different consumption brackets for non-business use.
• A new consumption bracket for natural gas and electricity, known as the basic package. For natural gas, this includes the bracket ranging from 0 to 12 MWh, and for electricity, the bracket from 0 to 3 MWh.
• A price protection mechanism with a cliquet system, which adjusts excise taxes on the basic package according to market price in order to manage fluctuations.
• A reduced excise duty rate for residential protected customers with low income or vulnerable situations, without consumption brackets and without cliquet systems. At present, these customers are exempt from excise duties.

The price protection mechanism is designed to automatically offset a "VAT gain" resulting from market price fluctuations in excise duties. This is achieved through a cliquet system, which adjusts the special excise duty rate for the basic package if the price surpasses a certain threshold. If energy prices increase significantly, excise duties on the basic package will decrease, but not on additional consumption. In other words, the excise duty is charged at the full rate if energy prices, as they currently are, fall below a certain limit. If this limit is exceeded, the excise duty rate will be reduced for a base bracket of consumption.

For natural gas, there is also a cliquet system for consumption brackets above the basic package when the price falls below a certain value. The VAT loss caused by price decreases is compensated with higher excise duties. In the future, this mechanism is intended to serve as a tool for facilitating the transition from gas to electricity.

Motor fuel excluded

The excise duty reform applies only to the non-business use of natural gas under CN codes 2711 11 00 and 2711 21 00 as heating fuel and the non-business use of electricity under CN code 2716. Supplies of CNG (Compressed Natural Gas) and LNG (Liquefied Natural Gas) as motor fuel (for industrial purposes or transport) are not subject to the excise reform and are therefore not eligible for the reduced VAT rate.

Rebuttable legal presumptions

Energy suppliers are held liable for the correct application of VAT and excise duties only if they possess adequate information about their customers' status.

A legal presumption states that if a customer does not provide a company number when entering into an electricity or gas contract, the supplier may assume it pertains to non-business use. A second rebuttable presumption indicates that it concerns a delivery for business use if the customer has provided a company number when concluding the contract, unless the customer has expressly stated that it concerns a delivery for primarily non-business use.

These presumptions aim to protect energy suppliers from liability related to the accurate application of the reduced VAT rate and the calculation of excise duties.

To prevent disputes, the law provides a standard statement that customers can submit, for example, through the website, letter, or email.