VAT in Spain is the most important indirect tax. It is charged on both goods and services, and its base rate is currently 21%. Our article does not refer to the Canary Islands, Ceuta and Melilla. These zones are under specific local taxes similar to VAT.
Speaking of VAT in Spain, it is impossible not to mention a special allowance, which either simplifies or, on the contrary, complicates the life of entrepreneurs working in retail – Recargo de Equivalencia. This allowance does not apply to companies, they take into account VAT in the traditional way, but as our article about taxes concerns business in Spain in general, we must mention the details of how entrepreneurs work. We will also touch upon VAT accounting for international transactions in the territory of the European Union.
VAT in Spain for Legal Entities
Today ‘s actual VAT rates (Impuesto sobre el Valor Añadido – IVA) in Spain are 0%, 4%, 10%, 21%.
In most cases, legal entities in Spain take into account VAT according to the standard scheme and set off the amounts accrued for payment to the budget and for a refund:
- VAT to pay is calculated on the basis of invoices issued by the company to its customers.
- VAT to repay is calculated on the basis of invoices paid by the company itself.
The difference between VAT payable and VAT refundable is reflected in the relevant declaration and either transferred to the budget or requested from the budget.
Small and Medium Businesses make the declaration under Form 303 once a quarter, till 20-th day of the following months: April, July, and October, and from January 1 to January 30. The calculation is recorded on an accrual basis, and if the fourth declaration has a negative result, the taxpayer has the right to request a refund.
VAT refunds are usually made between March and June of the year following the reporting year. The annual declaration under Form 390 is made at the same time as the declaration for the 4th quarter of the reporting period.
In certain cases, it is allowed to submit VAT declarations on a monthly basis, and under this mode of reporting, the return will be made monthly. Typically, the monthly submission is chosen by newly established companies incurring heavy expenditures in duties and taxes in the first stage of establishing and developing a business.
In addition to Form 303, the Tax Authority requires these companies to fill an additional background Form 340 for transactions recorded in the company’s books. Furthermore, VAT accounting books must be available in an electronic format through the company’s personal account on the website of the tax service.
The situation becomes more complicated if the company carries out several types of activities at once, some of which are subject to VAT, while others are not. For example, educational services and dental services are exempt from tax. This greatly complicates accounting, as it involves proportional VAT accounting for certain types of expenses.
VAT in Spain for Individual Entrepreneurs
If an individual entrepreneur in Spain works in the retail sector and sells the product to the final consumer in the form in which it is, without making any changes, then he is obliged to apply a special VAT accounting regime, which implies the use of a special allowance – Recargo de Equivalencia.
This allowance does not apply to entrepreneurs working in the manufacturing, wholesale or service sectors.
The following surcharges apply at current VAT rates:
- 5.2% for goods subject to VAT at the rate of 21%;
- 1.4% for goods subject to VAT at the rate of 10%;
- 0.5% for goods subject to VAT at the rate of 4%;
- 0.75% for tobacco.
On the one hand, such an allowance implies the payment of a larger amount of VAT to the budget. On the other hand, the entrepreneur is released from the obligation to report on VAT to the tax.
The allowance shall be allocated as a separate line in addition to the main VAT in all invoices of suppliers the entrepreneur is working with. And it is the suppliers who will be involved in declaring and transferring VAT to the budget. The entrepreneur himself, being exempt from VAT, is not entitled to demand a refund in case of high costs or negative results of activities.
These nuances should be kept in mind if there were plans for significant investment in your own business, and the business itself involves VAT accounting with a supplement.
VAT in Spain for International Transactions
Companies operating in the European market and engaged in the import-export of goods are registered with the tax authorities by submitting a declaration under Form 036, after which they receive a special VAT number (NIF-IVA). In order for invoices to be issued without VAT, it is essential for a number of conditions by the buyer and supplier of goods to be met.
- Transportation of goods has to go from one EU country to another EU country (with the exception of the Canary Islands, Ceuta and Melilla, where other VAT equivalent tax applies).
- Both the buyer and the supplier have to be entrepreneurs or legal entities.
- Both buyer and supplier have to be registered with the VAT Information Exchange System (Censo VIES) and with the Register of Intra-Community Operators (ROI).
In this case, the exporter does not include VAT in the invoice, and the importer pays VAT at the rates which are applicable in his country at the time of the passage of goods through customs. The same is true for services provided across the EU.
All transactions must be reported upon Forms 303 and 349. The latter is filed once a month, every two months, once a quarter, and once a year, depending on the volume of international transactions.
VAT in Spain When Buying Property
As for real estate in Spain, two rates are applied here – 10% and 21%.
Below we list the types of real estate transactions where VAT is payable in Spain. In all other cases, transactions are subject to the Property Transfer Tax (Impuesto Sobre Transmisiones Patrimoniales – ITP) at rates specified by each individual autonomy. These include, for example, many real estate transactions made on the secondary market.
The amount of tax payable is calculated from the price of property indicated in the notarial bill of sale.
VAT 21%
- Construction in progress (residential and commercial property);
- Construction is completed, but the building has not been commissioned;
- Building for subsequent remediation and sale (the seller is a legal entity);
- Construction is completed, commercial facility has been commissioned (primary sale and all subsequent resales on the secondary market);
- Construction is completed, the building has been commissioned, a garage space and/or utility rooms has been purchased ***.
10% VAT
- Construction is completed, the residential facility has been commissioned (apartments, studios, townhouses), a license for primary settlement is issued;
- Construction is completed, the building has been commissioned, a garage space and/or utility rooms has been purchased*;
- Construction is completed, residential facility has been commissioned (detached houses with their own land plot)**.
VAT in Spain at the rate of 10% is levied on the purchase and sale of a garage space (maximum, 2 places per apartment) and utility rooms (basement, attic, storerooms, etc.), provided that the purchase is made simultaneously with the purchase of housing and this fact is recorded in the same bill of sale. The garage space and utility rooms are compulsory to be located in the same building as the dwelling.
** As long as the land area does not exceed 5,000 m2. Square meters of land, starting from 5.001 and above, are taxed at a VAT rate of 21%.
*** VAT in Spain at the rate of 21% is levied on the purchase and sale of garage space and utility rooms, if the purchase is not made simultaneously with the purchase of dwelling and/or these properties are located in another building.
