The European Union VAT Directives have been integrated into Spanish law through Law 37/1992, which has been in effect since January 1, 1993. These directives are harmonized across all Member States of the EU.
Value-Added Tax (VAT) is an indirect tax which is primarily borne by the end consumer. Traders and professionals are typically able to offset their input VAT against their output VAT, making it a cost-neutral tax for them.
The following transactions are subject to VAT when conducted by traders and professionals in the course of their business:
- Supplies of goods, which generally refers to the transfer of the right to dispose of tangible property, although certain transactions not involving a transfer may also be considered as supplies of goods for VAT purposes.
- Intra-Community acquisitions of goods (generally, acquisitions of goods dispatched or transported to Spanish VAT territory from another Member State).
- Imports of goods, which are subject to VAT regardless of who performs them.
- Supplies of services.
- Real estate properties and transfered assets of a company may also be affected by VAT under certain scenarios.
The law establishes rules for determining the place where various transactions are deemed to take place. According to these rules, VAT in Spain may or may not be applicable. The law also regulates specific exemptions, different rates, deduction rules, refund schemes, tax group companies, invoicing obligations, forms and compliance, among other topics.
It is important to note that there are multiple ways of making the same transaction, and depending on how it is done, the effect on VAT can vary. Therefore, it’s crucial to review the spectrum of transactions in the business model of the company as well as any non-recurrent transactions that may arise.
At CIB, we encourage our clients to create a VAT transactions map in order to have a comprehensive understanding of the VAT impact on the company or group of companies. This allows the identification of any potential risks and opportunities related to VAT, and to accurately quantify the impact on cash flow management. By creating a VAT map, companies can make informed decisions about their VAT strategy and ensure compliance with the law. Additionally, it can help to identify areas where they may be able to claim back any overpaid VAT, which can be beneficial for cash flow management.
Within Spain, VAT is not applicable in the Canary Islands, Ceuta and Melilla. Instead, they have their own indirect tax, similar to VAT, which is levied on the supply of goods and services in the Canary Islands by traders and professionals and on imports of goods.
