The VAT or Value Added Tax it is an indirect tax that applies in Spain (except for the Canary Islands, Ceuta and Melilla) for taxing consumer goods. This tax has been levied in our country, since 1985, on the carrying out of professional activities and the supply of goods by legal entities (companies or self-employed individuals) to consumers, who are ultimately the ones who pay 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.
This way, all consumers pay the same amount of VAT, regardless of their income or wealth.
It is also about a regressive tax that 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:
There are also a number of activities exempt from VAT.
The VAT exempt is the name given to allA business operation that falls outside the scope of the tax. VAT exempt does not mean that tax does not exist, but rather that the transaction affected by it is exempt from the obligation to pay tax.
The 37/1992 Act publishes a detailed list of activities that do not need to be included in the tax return to the Treasury as they are subject to exempt VAT. Some of the goods and services where VAT does not apply are:
Regarding the declaration, only if we have worked on an exempt activity will we have to submit form 303 with a value of 0, as we have not incurred any VAT. However, this does not mean that we have not carried out an activity.
In the event that there is only one activity to which the exemption applies, you will need to register using form 036, without needing to submit form 303.
Nevertheless, in both cases we will be obliged to submit model 130 if we have not withheld personal income tax on the invoices.
On occasion, declaring VAT exempt presents a drawback for businesses registered with codes corresponding to different activities.
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.
This way, the box corresponding to the total VAT-exempt activities is ticked annually, specifying the overall calculation for the twelve months.
Lastly, we are obliged to complete tax form 130 for Personal Income Tax whenever we have not withheld tax on at least 7 out of every 10 invoices issued. If tax has been withheld on the entirety of the invoicing, it is not necessary to submit this form.
VAT is a tax that is present in all countries of the European Union. The intra-Community VAT is the one that applies when the sales take place within European territory and the buyer and seller are located in different EU countries. It applies to both products and services.
It's important to note regarding this type of VAT that it's not the same whether it's a final consumer or an intermediary. In the first case, it is the consumer themselves who pays the corresponding VAT of the country in which they make the purchase.
In the second case, if the buyer is an intermediary, the VAT payment should not appear on the invoice for that transaction, as it will be applied later.
For the intermediary to avoid paying VAT, they must be registered on the ROI (Intra-Community Operations Register) and be a company with its corresponding VAT number. In this case, intra-community VAT must be paid as the self-assessment of VAT for the goods or services acquired.
The intermediary company will act as the taxable person and will have to self-assess the corresponding tax at the place from which it carries out its activity.
Since this type of VAT can be associated with the normal activity of the company itself, it will be a Deductible VAT, so you can ask the tax authority for a refund of that tax.
The Intra-Community operations are carried out between different countries of the European Union. As they are European countries, they maintain common and interconnected administrations and legislation.
Therefore, intra-Community transactions are those relating to the Purchase and sale of goods or services carried out between different countries that are members of the European Union and between companies.
Third countries that trade in euros but are not part of the European Union (for example, Andorra), as well as some specific regions of the European Union (for example, the Canary Islands), will be exempt from paying intra-community VAT.
Para llevar a cabo operaciones intracomunitarias, una empresa deberá have an intra-Community TIN which allows operations not only within the national territory, but also throughout the entire 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 NIF, it will be able to operate throughout the European space in the same way it does within the national territory.
For this reason, the invoice must include the corresponding intra-community VAT, which can be checked on the VIES register, a system for validating economic transactions at a European level.
All Intra-Community operations must be declared quarterly. For every company operating at a European level through the quarterly VAT model 303 (even in the case of VAT-exempt goods or services). Model 349, which is a summary of intra-Community transactions carried out, must also be submitted.
In intra-community transactions, the buyer has to pay the corresponding VAT. However, when a company makes a purchase in another European country, this VAT must also be paid, but it will be deductible if it meets the following requirements:
This way, the purchasing company will reclaim 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 A transaction not subject to VAT does not mean it is a VAT-exempt transaction., although the names can cause confusion, let's look at the differences.
According to Law 37/1992 of 28 December on Value Added Tax, the VAT exempt transactions are those economic operations that, although they must be subject to VAT and constitute a taxable event, the regulations establish that the rate applicable to them is zero.
According to this 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 of a vehicle between private individuals. As neither party is a company, the transaction will not be subject to VAT payment.
The VAT Act provides for a number of exemptions, as follows:
There is a wide range of operations that are exempt from VAT, meaning they are not subject to VAT. Below, we detail which ones these are. the most common:
The Article 7 of the VAT Act describe in detail all the Transactions not subject to VAT.
The way in which a company manages input and output VAT It is very important as it can directly affect the company's profit and loss 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 must be returned in its entirety 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 It is the cost added to the net price that a consumer bears when buying a product or service. Input VAT There is room to improve the profitability of operations, which, while not a very large percentage increase, can make a significant difference to the 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 To manage the company well which avoids breaching 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.
This last point is what happens, for example, in the case of supplies. Whenever possible, we should try to negotiate agreements with suppliers or extend payment periods to ensure that these types of operations and the VAT they involve do not affect the business's cash flow.
As we have discussed, between businesses, the seller of the product or service issues the invoice, passing on the VAT, while the buyer bears it, pays it, and subsequently deducts it when settling their accounts.
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 It is the tax added to the price we pay for a product or service subject to VAT. In the case of companies, once paid, it can subsequently be deducted when settling with the tax authorities.
Deductions are a fundamental element of tax mechanics. VAT neutrality for entrepreneurs or self-employed professionals involved in the various stages of production processes, it is obtained allowing them to deduct the input tax incurred on the acquisition or import of goods or services.
Veamos a continuación un example:
A company A sells industrial machinery. They buy some computer equipment from company B:
The price of the equipment is €100,000 plus €21,000 VAT (21%), making the total invoice €121,000.
21,000 euros of VAT:
The VAT charged or accrued It is that which business owners and professionals are obliged to charge their clients for the delivery of goods or the provision of services carried out in the course of their business, and which must be paid to the tax authorities through the corresponding tax returns, after deducting any deductible amounts.
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. In this way companies act as intermediary or collecting figures, as they receive the tax amount to subsequently forward it to the country's tax authority.
At the end of each tax period, whether quarterly or annual, companies calculate the VAT they must declare or pay to the Tax Agency. To do this, they calculate the difference between the VAT charged and the VAT incurred.
VAT Payable = VAT Charged – VAT Deducted
It is common to understand the amount of this passed-on tax as part of the company's revenue. However, this is far from the reality, as this money is ultimately destined for the State. In this way, the collection is left in the hands of business owners and the self-employed.
Both companies and self-employed individuals can deduct the VAT paid on their purchases of goods and services from the VAT collected on the operations they carry out, provided 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 derives from taxable operations carried out within the country and is linked to expenses related to the economic activity developed. These expenses must be duly justified and incorporated into the company's accounting.
Any expense not related to the business or professional activity cannot be deducted.
La 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). To be able to claim an VAT refund, certain specific elements that allow for it must be present.
It is important to know that the VAT refund can only occur in the expenses associated with economic activity provided that more VAT has been paid throughout the year than has been received. The business owner or sole trader requests a refund of this VAT from the Tax Agency because they have previously paid it.
Once the last quarter of the year has closed and the annual summary has been submitted, if we find that we have paid more VAT than we have collected from our sales invoices, the tax authorities will have to refund us the difference.
This calculation is performed based on 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 will be able to claim a refund of the corresponding VAT.
Conversely, should the difference be positive, we will need to enter the VAT overcharged within the relevant period.
The application for VAT refund is made compulsorily via telematic means through the procedure enabled on the Electronic Headquarters of the Tax Agency and requires digital signature identification (electronic certificate or electronic ID).
The VAT Law states that Training activities on early childhood education and youth, childcare, school, university and postgraduate teaching, language teaching, and professional training and retraining will be exempt from VAT.
For the training activity to be exempt, it must impart a subject included in the syllabi of any level and grade of the Spanish education system.
Therefore, training is only exempt from VAT as long as the topics taught are part of the so-called Formal education, from the subjects that appear in the training plan approved by the Ministry of Education.
It is the responsibility of the Ministry of Education or the regional bodies to determine whether or not a subject is included in any curriculum of the educational system (formal education) for the purposes of applying the exemption.
A ancillary service from a primary activity such as teaching, when it does not constitute an end in itself not for the recipient, but the means to enjoy the main service in better conditions. In this case, the ancillary service follows the same VAT treatment as the main activity on which it depends.
For example, a training centre that provides academic materials upon enrolment in a VAT-exempt course may consider these materials as incidental and they would also be exempt from VAT.
The Spanish petrol VAT is 21%, This means that for every 100 euros spent on fuel, 21 of them could be deductible. Fuel is one of the most significant expenses that both the self-employed and companies have to face.
The Value Added Tax Act is not very clear on the possibility of deducting VAT on petrol. Since 2012, it has been possible to deduct the full VAT amounts paid when refuelling, even if the vehicle involved is not entirely used for the company's business.
They will only be able to deduct 100% of the VAT on petrol vehicles belonging to the following classification:
It will also be necessary to demonstrate that there is a correlation between the journey and business activity, and the vehicle must be intended wholly or partly for such 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 transport 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 way.
While some of them have a reduced tax rate of 10%as is the case with primary catering and accommodation services, others are taxed at 21%, as for example in the case of renting a room for an event.
Expenses incurred for the use of hotels and their facilities and services, arising from the development of the business activity, they can always be deduced.
Companies can deduct VAT on expenses incurred during the performance of their business, as is the case with taxis., subject to 10% VAT, as long as they can provide complete invoices with their fiscal details. The deadline for deducting such expenses from when they occur 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 Billing Regulations (Royal Decree 1619/2012), taxi drivers comply with their billing obligation by issuing simplified invoices (the receipt or ticket), which do not include the details of the service recipient.
They are only obliged to issue a full invoice with the customer's details if the customer requests it because they require it to exercise any tax-related right, such as the deduction of VAT. It is very important that companies can deduct these expenses which can amount to a significant sum annually.
The VAT rates that apply in our country are the standard 21%, reduced 10%, and super-reduced 4%. The first of these is the default tax rate for all products and services generally.
La corrective invoice This is a document issued to correct a previous invoice, to make a return, or to reclaim the 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 any of the above-mentioned situations has occurred. Furthermore, the Regulation allows for several invoices to be rectified 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 Be valid should contain the following elements:
VAT is a tax applied throughout the national territory with the exception of the Canary Islands. In this community, the IGIC (Canary Islands General Indirect Tax).
This is a tax of an indirect nature which records the supply of goods and services carried out in the Canary Islands, as well as imports which are carried out in that territory.
The IGIC It serves the same function as VAT as both tax business activity, but it is distinguished from the latter 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 individuals with an annual turnover not exceeding €30,000 will also be able to benefit from a special scheme that exempts them from charging IGIC on their products or services.
It should be noted that there are Certain products and services that are exempt from IGIC: Retail, cultural enterprises, healthcare, social assistance, sports entities, cultural entities, education, insurance, reinsurance and financial operations.
The Tax on Production, Services and Imports (IPSI) is applied in Ceuta and Melilla. The IPSI is the indirect tax that records the import and production of goods, and the provision of services in both autonomous cities.
However, Trade between Ceuta and Melilla and the mainland is free from indirect taxes. (both IPSI and VAT). Nevertheless, it is advisable to consider the following aspects for all professionals and companies invoicing to Ceuta and Melilla:
The IPSI consists of the following types:
