The VAT or Value Added Tax is an indirect tax levied in Spain (except the Canary Islands, Ceuta and Melilla) for the following purposes taxing consumer goods. Since 1985, this tax has been levied in Spain on the performance of professional activities and the supply of goods by legal entities (companies or self-employed workers) to consumers, who ultimately pay the VAT.
It is a indirect tax because it is not directly linked to the consumer's income, but is included in the final price of the products or services purchased.
In this way, all consumers pay the same amount of VAT, regardless of their income or wealth.
It is also about a regressive tax which accumulates along the production and supply chain until it reaches the final customer. The participants in this chain act as tax collectors for the state, as they bear it and pass it on in a downward chain until it finally reaches the consumer.
The VAT is divided into three types based on the nature of the product or service that it is serious and are as follows:
In addition, there are also a number of activities exempt from VAT.
The VAT exempt is the name given to allThe tax is levied on a business transaction which falls outside the scope of the tax. Exempt VAT does not mean that VAT does not exist, but that the transaction to which it relates is exempt from taxation.
A detailed list of activities that do not need to be included in the tax return as they are subject to exempt VAT is published in Law 37/1992. Some of the goods and services where VAT does not apply are:
With regard to the declaration, only if we have worked in an exempt activity should we file form 303 with a value of 0, as we have not borne any VAT. But this does not mean that we have not carried out an activity.
In the case of having a single activity to which the exemption applies, we must register on form 036, without the need to file the 303 form.
However, in both cases, we will be obliged to file form 130 if we have not withheld personal income tax from the invoices.
Sometimes the declaration of exempt VAT poses a problem for entrepreneurs who are registered under different activity headings.
In this case, the taxable activity must be declared on form 303 and the exempt activity must be left at 0. Subsequently, the total amount invoiced, including the exempt activities, must be accounted for and recorded on form 390.
In this way, the box corresponding to the total VAT exempt activities is ticked annually, specifying the total for the twelve months.
Lastly, we are obliged to complete form 130 for Personal Income Tax if we have not withheld tax on at least 7 out of every 10 invoices made. If this withholding has been made on all invoices, it is not necessary to file this form.
VAT is a tax that is present in all EU countries. The intra-Community VAT is the one that applies when the sales take place on European territory and the buyer and seller are located in different EU countries. It applies to both products and services.
It is important to note with regard to this VAT rate that it is not the same whether it is a final consumer or an intermediary. In the first case, it is the consumer himself who pays the corresponding VAT of the country in which he buys.
In the second case, if the purchaser is an intermediary, the VAT payment should not appear on the invoice for that transaction as it will be applied later.
In order for the intermediary to avoid paying VAT, he must be registered in the ROI (Registro de Operaciones Intracomunitarias) and be a company with the corresponding NIF. In this case, the intra-Community VAT must be paid as the self-assessment of VAT on the goods or services purchased.
The intermediary company will act as a taxable person and will have to self-assess the corresponding tax at the place where it carries out its activity.
Since this VAT rate can be associated with the normal activity of the business itself, it will be a Deductible VAT, The tax authority can therefore be asked to refund the tax.
The intra-Community transactions are carried out between different EU countries. As European countries, they have common and interlinked administrations and legislation.
Therefore, intra-Community transactions are those relating to the sale or purchase of goods or services between different countries that are members of the European Union y between companies.
Third countries which, although trading in euro, are not part of the European Union (e.g. Andorra), as well as certain specific regions of the European Union (e.g. the Canary Islands), will be exempt from intra-Community VAT.
In order for an undertaking to carry out intra-Community transactions, it must have an intra-Community TIN which allows it to operate not only on national territory, but also throughout the European Union.
But, in this case, how is intra-community VAT applied? Once the company is registered in the ROI and has an intra-Community VAT number, it will be able to operate throughout the European area in the same way as it does in the national territory.
For this reason, the invoice must include the corresponding intra-Community VAT, which can be consulted in the VIES census, a system for validating economic transactions at European level.
All intra-Community transactions shall be declared on a quarterly basis. for each company operating at European level through the quarterly VAT form 303 (even in the case of goods or services exempt from VAT). Form 349, which is a summary of intra-Community transactions carried out, must also be filed.
In intra-Community transactions, the purchaser has to pay the corresponding VAT. However, when a company makes a purchase in another European country, this VAT must also be paid, but will be deductible if it meets the following requirements:
In this way, the purchasing company will recover the VAT paid on the purchase.
For all of the above reasons, it is essential that all intra-Community transactions are carried out in accordance with the law and that an intra-Community VAT number associated with the ROI is available beforehand.
A transaction not subject to VAT does not mean that it is a VAT exempt transaction., Although the names can be confusing, let's look at the differences.
According to Law 37/1992 of 28 December 1992 on Value Added Tax, the VAT exempt transactions are those economic transactions which, although they are subject to VAT and represent a taxable event, the legislation establishes that the rate applicable to them is zero.
According to the same law, transactions not subject to VAT are the special economic operations in which this tax does not apply for a specific reason.
For example, a transaction not subject to VAT is the sale and purchase of a vehicle between private individuals, as neither party is a company, the transaction will not be subject to VAT.
The VAT Act provides for a number of exemptions, as follows:
There is a wide range of transactions which are not subject to VAT, i.e. which are not subject to VAT. These are as follows the most common ones:
The Article 7 of the VAT Act describes in detail what all the different types of transactions which are not subject to VAT.
The way in which a company manages input and output VAT is very important as it can directly affect the bottom line at the end of the year.
The VAT charged has to be declared and it is money which, although it is paid into the company's account, does not belong to it, since it shall be returned in full to the Administration.
For this reason it is very important not to count on this money for business activity, because at the end of the quarter we will have to pay it back.
The Input VAT is the cost added to the net price that a consumer assumes when purchasing a product or service. On the Input VAT there is scope for increasing the profitability of operations which, while not very large on a percentage basis, can make a significant difference to cash flow at the end of the year.
When talking about improving the profitability of input and output VAT transactions it has to be borne in mind that, as far as output VAT is concerned, there is only one possible way to increase profits or prevent them from decreasing.
It is about good corporate governance to avoid failing to comply with the requirements imposed by the Tax Agency. It is also necessary to have optimal control of recurring expenses to improve the profitability of the business.
The latter is the case, for example, for supplies. Whenever possible, we should try to negotiate agreements with suppliers or extend payment periods to ensure that such transactions and the VAT they entail do not affect the cash flow of the business.
As mentioned above, between companies, the seller of the product or service is the one who issues the invoice, charging VAT on it, while the buyer bears the VAT, pays it and subsequently deducts it at the time of settlement.
The VAT charged is the tax levied on sales of goods and services, both to other businesses and to private consumers, and must appear on all invoices.
The Input VAT is the tax that is added to the price we pay for a product or service subject to VAT. In the case of companies, once paid, it can be subsequently deducted at the time of settlement with the tax authorities.
Deductions are a basic element in the mechanics of the tax. The VAT neutrality for entrepreneurs or self-employed professionals involved in the different stages of the production processes, the following is obtained allowing them to deduct the input costs incurred in the acquisition or importation of goods or services..
Here is an example of a example:
A company A sells industrial machinery. It buys computer equipment from company B:
The price of the equipment is 100,000 euros plus 21,000 euros VAT (21%), bringing the total invoice to 121,000 euros.
21,000 euros of VAT:
The VAT charged or accrued is the tax that business people and professionals are obliged to charge their customers for the supply of goods or services that they carry out in the course of their business and which they must pay to the tax authorities by means of the corresponding settlements, after deducting the deductible amount.
It is therefore a percentage amount of money (general 21%, reduced 10% or super-reduced 4%) that is added to the net cost of the good or service. Thus companies act as intermediary figures or collectors, They receive the amount of the tax and then forward it to the tax authority in the country.
At the end of each tax period, quarterly or annually, businesses calculate the VAT that they have to declare or pay to the tax office. To do this, they calculate the difference between output VAT and input VAT.
VAT payable = VAT charged - VAT borne
It is common to understand the amount of this tax as part of the company's income. But nothing could be further from the truth, as the final recipient of this money is the state. In this way, the collection is left in the hands of entrepreneurs and the self-employed.
Both companies and the self-employed can subtract the VAT they have had to pay on their purchases of goods and services from the VAT due on the transactions they carry out, provided that certain requirements are met.
This right to deduct input VAT is a fundamental element in the scheme of operation of the tax.
According to the Law 37/1992, input VAT, i.e. that which the company or professional pays when acquiring any good or service, can be divided into two categories: deductible VAT and non-deductible VAT.
It is considered Deductible VAT that which derives from taxable operations carried out within the country and is linked to expenses related to the economic activity carried out. These expenses must be duly justified and included in the company's accounts.
Any expenses that are not related to the business or professional activity cannot be deducted.
The VAT refund is the process by which the tax office refunds all or part of the VAT collected from a taxable person (the company or self-employed person making the payment). In order to be able to apply for a VAT refund, it is necessary that certain specific elements are in place.
It is important to know that the VAT refund can only occur in the expenditure associated with the economic activity provided that more VAT has been paid during the year than has been received. The entrepreneur or self-employed person applies to the Tax Agency for a refund of this VAT because he/she has previously paid it.
Once the last quarter of the year is closed and the annual summary has been submitted, if we find that we have paid more VAT than we have collected on our sales invoices, the tax authorities must refund us the difference.
This calculation is made on the basis of monthly or quarterly operations (purchases and sales). At the end of the last quarter of the year, if the result is to be offset, we can request the corresponding VAT refund.
On the other hand, if the difference is positive, we must pay the overcharged VAT within the corresponding deadline.
The application for a VAT refund must be made online using the procedure set up at the Tax Agency's Electronic Headquarters and requires identification with digital signature (electronic certificate or electronic ID).
The VAT Law states that VAT will be exempted on training activities in childhood and youth education, childcare, school, university and post-graduate education, language teaching and vocational training and retraining.
In order for the training activity to be exempt, it must teach a subject included in one of the syllabuses of any level and grade of the Spanish education system.
Therefore, the training is only exempt from VAT if the subjects taught are part of the so-called "training for the disabled". formal education, The subjects covered in the training plan approved by the Ministry of Education.
It is up to the Ministry of Education or the autonomous regional bodies to determine whether or not a subject is included in any curriculum of the education system (regulated education) for the purposes of the application of the exemption.
A The provision of the service is ancillary of a main activity such as teaching, when it is not an end in itself for the recipient, but the means to enjoy the principal supply under better conditions. In this case the ancillary supply is treated for VAT purposes in the same way as the principal activity on which it depends.
For example, a training centre that provides academic material upon enrolment in a VAT exempt course may consider this material as an accessory and would also be exempt from VAT.
The VAT on petrol in Spain is 21%, This means that out of every 100 euros spent on fuel, 21 of them can be deductible. Fuel is one of the most important expenses that both self-employed and businesses have to deal with.
The Value Added Tax Act is not very clear about the deductibility of VAT on petrol. Since 2012, it has been possible to deduct the full amount of VAT paid when filling up with fuel, even if the vehicle involved is not fully used for the company's business activity.
Only 100% of VAT on petrol will be deductible. vehicles belonging to the following classification:
It will also be necessary to prove that there is a correlation between the journey and the business activity and the vehicle must be wholly or partly used for that activity.
In the other cases, The tax authorities estimate that only 50% will be deductible. of petrol costs, provided that two requirements are metThe existence of an invoice and the correlation between the transfer and the business activity.
When we stay in a hotel we can choose to a wide variety of services, which are not taxed in the same manner.
While some of them are taxed at a reduced rate of 10%, as in the case of main restaurant and accommodation services, others are taxed at 21%, as for example in the case of renting a hall for an event.
Expenses incurred for the use of hotels and their facilities and services, arising from the development of the business activity, can always be deducted.
Businesses can deduct VAT on expenses incurred in the course of their business, such as taxis, subject to 10% VAT, provided that they can provide complete invoices with their tax details. The period for deducting such expenses from the time they are incurred is four years.
It should be borne in mind that taxis usually provide us with a receipt, which only shows the date, time or details of the taxi driver.
According to the Invoicing Regulation (Royal Decree 1619/2012), taxi drivers comply with their invoicing obligation by issuing simplified invoices (the receipt or ticket), which do not include the details of the recipient of the service.
They are only obliged to issue a full invoice with the customer's details if the customer demands it because he needs it in order to exercise any tax right, such as the right to deduct VAT. It is very important that companies can deduct these expenses which can amount to a significant amount per year.
The VAT rates applied in our country are the general rate of 21%, the reduced rate of 10% and the super-reduced rate of 4%. The first of these is the default tax rate for all products and services across the board.
The corrective invoice is a document issued to correct a previous invoice, to make a refund or to recover VAT on an unpaid invoice.
It is possible to issue a corrective invoice in the following cases:
The corrective invoice must be issued as soon as we realise that one of the above cases has occurred. In addition, the Regulation allows several invoices to be corrected in a single corrective invoice.
In order to issue a corrective invoice, it is important to bear in mind the following:
For a corrective invoice is valid should contain the following elements:
VAT is a tax that applies throughout the national territory with the exception of the Canary Islands. In the Canary Islands IGIC (Canary Islands General Indirect Tax).
This is a tax of an indirect nature which taxed on supplies of goods and services carried out in the Canary Islands, as well as on imports which are carried out in that territory.
The IGIC has the same function as VAT as both are levied on business activity, but differs from VAT in several respects:
The rates of the Canary Islands General Indirect Tax (IGIC) are as follows:
It should be noted that not everyone has to apply IGIC. All transactions between private individuals which do not have an onerous purpose should not be taxed with this tax.
New self-employed persons whose annual turnover does not exceed 30,000 euros will also be able to benefit from a special regime that exempts them from charging IGIC on their products or services.
It should be noted that there are certain products and services that are excluded from being subject to IGIC: retail trade, cultural enterprises, health care, social care, sports entities, cultural entities, education, insurance, reinsurance and financial operations.
The Tax on Production, Services and Imports (Impuesto sobre la Producción, los Servicios y la Importación (IPSI)) is applied in Ceuta and Melilla. The IPSI is the indirect tax that taxes the importation and processing of goods and the provision of services in both autonomous cities.
However, commercial transactions between Ceuta and Melilla and the mainland are free of indirect taxes. (both IPSI and VAT). Even so, the following aspects should be taken into account for all professionals and companies that invoice Ceuta and Melilla:
The IPSI consists of the following types:
