Dutch businesses may deduct VAT on legal services for a director when the work supports taxable business activity. The payer, invoice name and service recipient can differ. That can affect both the VAT return and the cash forecast.
Why this matters
Paying a law firm does not settle who received each service. A bill can cover company defence, advice to a director, staff interviews and group work. VAT treatment may differ by workstream. The company needs a compliant invoice and records linking the work to taxable turnover. Mixed taxable and exempt turnover may require a year-end adjustment. A refund used for payroll or suppliers can then become VAT due.
Example
A consultancy BV earns taxable advisory fees and exempt financing income. Its law firm sends one bill for company defence, director advice and group work. The BV reclaims VAT using its current turnover ratio. The refund helps pay payroll and suppliers. Full-year figures later change the ratio. A file review also finds work for another recipient. The BV corrects its VAT return and pays the difference. A split invoice and approval record would have shown the exposure earlier.
XTROVERSO tips
- Match the invoice to the engagement. Record which entity hired the lawyer, received the service and appears on the invoice. Keep the engagement letter in the VAT file.
- Separate the workstreams. Ask for clear descriptions of company defence, director support, staff interviews and group work. Do not book everything under one legal-fees line.
- Record why the company pays. Keep the board decision, contract, indemnity or insurance record explaining the payment. Use independent approval when a director’s conduct is involved.
- Check mixed-use VAT. Link the legal work to taxable and exempt turnover. Record whether the allocation uses turnover or actual use. Check the percentage at year-end.
- Keep uncertain VAT out of free cash. Split the budget into fees, recoverable VAT, VAT under review and possible reimbursement. Do not treat a provisional refund as settled cash.
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The data, sourcing, and analysis behind this article were conducted by Linda Pavan. AI was not used to identify sources, build the factual basis, or produce the analytical judgment contained here. AI was used only as a drafting aid. The final English text was personally reviewed, edited, and approved by Linda Pavan before publication.
References
- Taxence – Btw op juridische kosten voor concern pro rata aftrekbaar
- Rechtspraak – Hoge Raad, ECLI:NL:HR:2025:544
- Belastingdienst – Welke btw mag u aftrekken?
- Belastingdienst – Inschatting van belast en vrijgesteld gebruik
- Belastingdienst – Herziening voor goederen en diensten
- Wettenbank – Besluit uitsluiting aftrek omzetbelasting 1968
- Belastingdienst – Ontvangen facturen administreren
