The Belgian VAT authorities have issued a new circular (Circulaire 2024/C/80) that significantly alters the current approach to VAT recovery for insurers and clients involved in credit insurance. This change stems from the European Court of Justice’s ruling on February 9, 2023, in the case of Euler Hermes SA Magyarországi Fióktelepe (C-482/21).
Key Changes as from January 1st:
1. Insurers’ VAT Recovery: Insurers will no longer be able to recover input VAT on indemnified claims. This marks a departure from the previous practice where insurers, subrogated in the rights of the insured, could claim VAT restitution.
2. Clients’ VAT Recovery: Clients (insured parties) will also be unable to recover input VAT on the portion of the claim that has been indemnified by the insurer. This means that the indemnity received from the insurer is considered as part of the payment for the taxable transaction, and thus, no VAT reduction is applicable.
Implications:
- Financial Impact on Credit Insurers:
Credit insurers must carefully assess the financial implications of this new position. The inability to recover VAT on indemnified claims could affect their financial statements and pricing models.
- Impact on Contracts:
Existing and future contracts should be reviewed to understand the impact of this change. Insurers may need to renegotiate terms or adjust premiums to account for the non-recoverable VAT.
- Companies Using Credit Insurance:
Companies that rely on credit insurance should also evaluate the impact on their VAT recovery processes. They need to ensure compliance with the new rules and adjust their financial planning accordingly.
Conclusion:
The Belgian State stands to benefit from this new position as it retains the VAT that was previously recoverable by insurers and clients. Both credit insurers and companies using credit insurance must take proactive steps to understand and mitigate the financial and contractual impacts of this significant change.
Contact Us:
For further information and to discuss the approach to be taken, please contact us. We are here to help you navigate these changes.
