As in other countries, VAT in Spain is a tax levied on consumption. For the company or self-employed worker, VAT is never an additional expense although they are generally still required to file a VAT return each quarter and make a VAT payment based on the difference between the VAT billed through their own invoices and the VAT paid out to their suppliers.
The tax quarters in Spain are January 1 to March 31 (1st quarter: 1er trimestre), April 1 to June 30 (2nd quarter: 2º trimester) July 1 to September 30 (3rd quarter: 3er trimestre), October 1 to December 31 (4th quarter: 4º trimestre).
A simple example may serve as a useful illustration:
Company X has billed 12,100€ worth of goods in the quarter being 10,000€ for the products themselves plus 2,100€ VAT (assuming a VAT rate of 21%).
Company X has also paid out 6,050€ to suppliers in the quarter being 5,000€ for the products themselves plus 1,050€ VAT (assuming a VAT rate of 21%).
The amount of VAT company X has to pay for the quarter is therefore 2,100€-1,050€=1,050€.
Current VAT Rates in Spain
- Standard rate (21%): applicable to most sales of goods and services.
- Reduced rate (10%): applicable to water, food, animals pharmaceutical products, private homes, hotels, restaurants.
- Additional reduced rate (4%): applicable to pharmaceutical products for human use, bread, milk, vegetables, eggs, academic materials, books, newspapers and magazines.
VAT-exempt services and activities
The following services and activities are all VAT exempt in Spain:
- Medical and hospital services.
- Dental services.
- Aid services for the handicapped, OAPs etc provided by government bodies or social services agencies.
- Education including the teaching of languages and private classes.
- Services which are complementary to education (ballet, judo etc.).
- Sporting services provided by government bodies or social services agencies.
- Admission to museums, expositions etc. organised by government bodies or social services agencies.
- Kindergarten services.
- Social and/or cultural activities.
VAT outside of Spain
If you are a Spanish resident, the VAT paid on trips outside of Spain is not deductible here. However, your company may well be able to apply directly to the tax authority of the country in question for a refund of the amount of VAT paid. This will depend on a number of conditions:
- The country in which the VAT was paid is either a member of the EU or a country with which Spain has signed an agreement to this effect (for instance Hungary, Island, Norway, Switzerland, Estonia, Canada, South Korea and Slovenia).
- The expense incurred gives rise to a deduction not just in Spain but also in the country in question. For example, VAT paid on hotel expenses by a Spanish company in Portugal is not refundable as the latter does not allow for a deduction of the VAT paid on such expenses.
- Depending on the country in question, the VAT is only refundable after a certain minimum amount.
- Certain countries also require the company in question to have a representative resident in their territory.
Generally speaking, the different tax authorities allow for a VAT refund application up to June 30 (relating to VAT paid out in the previous fiscal year in that country). If this is the first time your company applies for a refund from the particular country, you will also have to provide a certificate from the Spanish tax authority which indicates that you are liable for VAT in Spain. In some countries you will also have to provide copies of the invoices along with the application form itself.
VAT and the EU
If a Spanish-resident business is billing companies which are not resident in Spain or do not have a permanent establishment here (branches, offices etc), then it should not include VAT (IVA) in its invoices to them for services rendered. In order for this rule to apply however, the companies must provide you with their tax number of the particular country they are resident in and be registered in the intracommunity register. If the companies are resident in Spain or have a permanent establishment here or simply have not provided you with their tax number from their country of residence other than Spain, then you should indeed include the VAT in your invoice.
VAT in Business Transfer
If you are buying a business, the owner should provide you with an invoice for the price agreed including 21% VAT on top of that charge.
Updated March 2014