How to Apply VAT?

VAT, a significant indirect tax in Spain, influences the prices of goods and services. It’s collected by businesses and paid to the tax office, with varying rates applied to different products and services.

Introduction

Explore the multifaceted realm of Value-Added Tax (VAT) in Spain—a pivotal indirect tax influencing the costs of goods and services. Unlock the intricacies of VAT, including its mechanisms, beneficiaries, and the varied VAT rates prevalent in Spain. Whether you’re a consumer, entrepreneur, or business entity, comprehending VAT is essential for navigating Spain’s fiscal terrain. Join us as we unravel the complexities of VAT and shed light on its significance in everyday transactions.


Frequent asked Questions

  • What is Value-Added Tax (VAT)?

Is the main form of indirect tax placed on goods and services, which means it affects the final price of virtually everything you will buy or use in Spain. Understanding this complex type of tax is anything but simple—so, if you want to know how VAT works, who must pay it, and the different VAT rates that apply in Spain, then this article is for you.

  • How VAT works in Spain

VAT is a tax collected by the Spanish tax office on both the items we buy and services we use. Companies and service providers are required to charge VAT to the customer, but they do not get to keep it—each quarter, they must pay what they have accumulated to the Spanish tax office. However, individuals and companies that charge VAT can also deduct their input VAT—the VAT they pay as part of their expenses—when they file tax returns. This means that every time they pay VAT for supplies and services, they can subtract that VAT amount from what they owe to the tax office.

  • Who Pays VAT?

Although VAT is charged on what both individuals and companies consume, it is ultimately only paid by individuals. This is because companies and the self-employed play two roles—they collect VAT every time they make a sale, and they pay VAT on what they purchase from their suppliers. When the amount of VAT they charge is more than the VAT they paid on their purchases, the company owes the government money. Alternatively, if the company has paid more VAT than it has received, it can claim a refund from the tax office. In this way, companies function as intermediaries—or passive taxpayers—for the VAT that consumers pay.

  • What VAT % Exist?

General VAT:This is the most common of the three VAT rates and is applied by default to all goods and services not subject to reduced or super-reduced VAT rates

Reduced VAT:Just like general VAT, the reduced value-added tax is levied on the consumption of goods and services—albeit at a lower rate, 10%, than the general one. The reduced rate applies to the following products and services: Products used for producing human food and animal feed, cultural activities, public transportation, etc.

Super-reduced VAT:At 4%, the super-reduced VAT rate is the lowest value-added tax charged on products. It is mainly used to tax goods considered by law as basic necessities like essential foods—including bread and bread flours, eggs, fruits and vegetables, grains, pharmaceutical drugs for human use, etc.

  • VAT-Exempt Products

Certain services and products are not subject to value-added taxes in Spain, including financial and savings products and insurance, education in public schools and authorized private schools, vocational training, private tutoring and language classes, healthcare services provided by medical professionals.

  • When to apply VAT?

The B2B rule locates the transaction where the business customer is located. In case the customer is a private individual, B2C rules locate the transaction where the supplier is located. According to the general B2B rule, any business not established in Spain supplying services to a Spanish registered customer will not charge any VAT and the transaction will be reverse charged by the customer.

There are however a number of exceptions to this rule. Where these exceptions apply, reverse charge is still applicable in Spain like Services connected to immoveable property are located where the property is located, passenger transport services will be located where the transport takes places (apportioned if necessary).


Reverse Charge

Where a non-established supplier sells goods to a taxable person, domestic reverse charge applies. It is not relevant if the supplier is registered or not. Regarding the customer, it is not relevant if it is established or VAT registered. Even when the customer is not VAT registered, reverse charge applies, hence requiring this customer to register and account for VAT.

For services, however, domestic reverse charge would only apply where a) the supplier is not established, b) the service is located in Spain according to the exceptions to the B2B rule (e.g., admission to events, land related, etc.) and the c) the customer is established in Spain for VAT purposes.


What is the ROI / VIES?

The VIES is an electronic means of transmitting information relating to the VAT registration (=validity of VAT numbers) of businesses registered in the EU. Information on intra-Community (tax-exempt) supplies between Member State administrations is also transmitted via VIES.

The Register of intra-Community operators is made up of persons or entities that have been assigned a Spanish VAT number (NIF-IVA):

  • Entrepreneurs or professionals who conduct intra-Community supplies or acquisitions of goods subject to Spanish VAT.
  • Entrepreneurs or professionals who carry out intra-Community acquisitions of services in respect of which they are taxable persons, by inversion, and entrepreneurs and professionals who conduct intra-Community supplies of services taxed in the Member State of destination when the taxable person is the recipient of such supplies.

In order to make an intra-Community supply without charging VAT you must ensure that the person to whom you are supplying the goods is a taxable person in another Member State and that the goods in question have left or will leave your Member State of origin for another Member State. It is also necessary for the VAT number to appear on the invoice.


Special Regime: Recargo de Equivalencia

The equivalence surcharge is a special VAT regime, which is compulsory for retailers who do not carry out any kind of transformation of the products they sell, i.e., for self-employed traders who sell to the final customer. It applies to both self-employed individuals and communities of goods.

In addition, 80% of total sales in the previous year must be to final consumers, i.e., private individuals who are not professionals or entrepreneurs. There are two exceptions to this condition:

  • If the retailer has not conducted any commercial activity in the previous year.
  • If the trader is taxed by objective direct estimation, i.e., modules.

Suppliers charge you the corresponding VAT plus the equivalence surcharge separately on your invoice at the following rates:

  • 5.2% for items that are subject to VAT at the standard rate of 21%.
  • 1.4% for items that are subject to VAT at the reduced rate of 10%.
  • 0.5% for items subject to VAT at the reduced rate of 4%.
  • 1.75% for tobacco.

VAT Refunds

If the VAT charged exceeds the amount of deductible VAT, the taxable person must pay over the difference in its periodic (monthly or quarterly) returns.If, conversely, the amount of deductible VAT exceeds the amount of VAT charged, the taxable person may request a refund of the excess which, as a general rule, can only be claimed in the last return for the year.

However, provided certain regulatory requirements are met, taxable persons who register on the Monthly Refund Register may claim a refund of the balance existing at the end of each assessment period.Registering on this Refund Register carries with it the obligation to file VAT returns monthly by telematic means (regardless of the taxable person’s turnover) as well as the obligation to keep VAT registers electronically.

The period for obtaining the refund is six months from the end of the period for filing the last return of the year (January 30 of the immediately following year) as a general rule and from the end of the period for filing monthly returns in the case of taxable persons registered on the Monthly Refund Register.

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The information contained herein is of a general nature, and subject to changes. Applicability to your specific situation should be determined through consultation with our tax or legal advisors.