Key takeaways
- The right to deduct is the rule (article 45, § 1 of the VAT Code); non-deductible VAT is the exception.
- Four categories are excluded: tobacco, spirits, restaurant and hotel costs, and entertainment expenses.
- VAT on a passenger car is capped at 50%, and limited further when professional use is lower.
- An expense can be a deductible business cost for income tax yet carry VAT you cannot recover: two separate regimes.
Non-deductible VAT, an exception to the right to deduct
A taxable person usually recovers the VAT paid on business purchases: that is the right to deduct, set out in article 45, § 1 of the Belgian VAT Code. You deduct the tax charged on the goods and services you use to carry out your taxed operations. This mechanism is what makes VAT fall, in the end, only on the final consumer.
Non-deductible VAT is the flip side of that rule. For certain expenses, the legislator excludes or limits recovery even when the purchase is genuinely a business one. The tax paid then stays your cost: it inflates the real price of the expense and never returns through your periodic return.
This article lists the expenses concerned in Belgium, explains the special case of the car, and shows how to handle this VAT without distorting your return. The rules sit in two paragraphs of the same article: § 2 for vehicles, § 3 for the outright exclusions.
The expenses whose VAT is never deductible
Article 45, § 3 of the VAT Code lists the outright exclusions. For these categories VAT is not recoverable, whatever the link between the expense and your activity. They target items the legislator judged too close to final consumption to open a right to deduct.
The exclusions of article 45, § 3
Manufactured tobacco
VAT on tobacco purchases is never deductible (article 45, § 3, 1°). Unlike spirits, the text provides no resale exception, because VAT on tobacco is collected at source under the special regime of article 58, § 1.
Spirits
VAT on spirits is not deductible, except where they are meant for resale or to be supplied as part of a service.
Accommodation, food and drink
Restaurant and hotel costs consumed on the spot: VAT not deductible, except for defined cases (staff travelling for a delivery or a service outside the business, resale).
Entertainment expenses
Hospitality and public-relations costs: VAT not deductible, unless the spend is mainly advertising in nature (see below).
Alongside these fixed exclusions, a more general limit applies to any mixed-use expense. VAT is deductible only up to the business use of the good or service. The share matching private use never opens a right to deduct: a computer used half privately gives a right to only half the tax.
The car: deductible VAT, but capped
The passenger car follows a regime of its own, under article 45, § 2 of the VAT Code. VAT on the purchase, rental, lease, maintenance, fuel and accessories of a passenger car is deductible up to 50% at most. This ceiling is absolute: above 50%, use is always presumed private, with no evidence to the contrary admitted.
Below that ceiling, the deduction tracks actual professional use. If that use is under 50%, the lower percentage applies. The FPS Finance accepts three methods to establish it, and you pick the one that best reflects your situation.
absolute cap
maximum deduction for a passenger car
accepted methods
to establish actual professional use
general flat rate
the no-logbook option, applied for at least 4 years
The three methods are: keeping a full trip log per vehicle, a semi-flat-rate calculation based on the home-to-work distance, and a general flat rate of professional use set at 35%. The 35% flat rate avoids any record-keeping but commits you for at least four years and then applies to all your cars. Some vehicles escape the cap, notably those meant for sale or rental by a dealer, and those used exclusively for the paid transport of persons.
Entertainment or advertising: a distinction that changes everything
The most contested line separates entertainment expenses, whose VAT is not deductible, from advertising expenses, whose VAT is. The same evening, the same meal can switch from one regime to the other depending on its real purpose.
The test used by case law is the main and direct object of the expense. If the event is above all meant to inform the final buyer of the existence and qualities of a product or service in order to promote its sale, the spend counts as advertising and the VAT becomes deductible again. If it is about keeping up an atmosphere or public relations, it stays a non-deductible entertainment cost.
How to handle non-deductible VAT in your bookkeeping
The principle is simple: non-deductible VAT is not a recoverable tax, it is part of the cost. You do not carry it into the deductible-VAT boxes of the periodic VAT return; you leave it attached to the expense, as a cost.
In practice, your accounting tool must apply the right deduction rate to each item: 0% for a restaurant bill, 50% (or less) for a car, 100% for an ordinary business purchase. The distinction happens when the purchase invoice is recorded, not at the time of the return. A correct split from entry onward avoids a later correction, often during an audit.
Handle your purchases and VAT without a split error
YouInv records your supplier invoices, applies the right deduction rate and prepares your VAT return in Belgium.
Keeping the logic in mind is the safest guide: deduction is the rule, exclusion is the exception, and each exception has its basis in article 45. The four § 3 categories are not recoverable; the car is capped under § 2; everything else is deductible to the extent of professional use. A doubt on an item is settled by going back to that text, or by putting it to your accountant.
Further reading
- The periodic VAT return in Belgium: where and how to report deductible VAT.
- VAT rates in Belgium: 21%, 12%, 6% and 0%, and when each applies.
- The VAT exemption scheme in Belgium: the small-business regime and its effect on deduction.
The reference sources prevail: article 45 of the Belgian VAT Code and Directive 2006/112/EC, which frames the right to deduct at EU level.
What is non-deductible VAT?
Non-deductible VAT is the tax you pay to your suppliers but cannot recover in your return, even when the expense is a business one. The right to deduct is the rule (article 45, § 1 of the Belgian VAT Code); certain expenses are excluded or limited by article 45, § 2 and § 3.
Is VAT on restaurant costs deductible in Belgium?
No. VAT on accommodation, food and drink consumed on the spot is not deductible (article 45, § 3, 3° of the VAT Code). One exception covers costs incurred by staff carrying out a delivery or a service outside the business.
How much of the VAT on a car is deductible?
VAT on a passenger car is deductible up to 50% at most (article 45, § 2 of the VAT Code). If professional use is below 50%, the deduction is limited to that actual use, established through one of the three methods accepted by the FPS Finance.
Is VAT on entertainment expenses deductible?
No, VAT on entertainment expenses is not deductible (article 45, § 3, 4° of the VAT Code). Case law does allow the deduction where the expense is mainly advertising in nature, meaning it directly aims to promote the sale of a product or service.
Where do you report non-deductible VAT?
Non-deductible VAT is simply not carried into the deductible-VAT boxes of the periodic return. It stays a cost booked with the expense, not a tax you recover from the State.
