VAT Rates in Spain
VAT in Spain is known as IVA (Impuesto de Valor Añadido) applies to all purchases made in Spain except for those transactions which are exempt and, as in other countries, there are various rates or bands. In Spain there are in fact three rates:
- Standard Rate: 21%
- Reduced Rate: 10%
- Super Reduced Rate: 4%
The Reduced VAT Rate of 8% applies to foodstuffs in general, home purchases, hotel stays, tickets to shows and other forms of entertainment, glasses and contact lenses, public transport and funeral services.
The Super Reduced VAT rate of 4% is applied to bread, milk, eggs, fruit, vegetables, cereals, cheeses, books, newspapers and medicines.
So the reduced rates are typically applied to those products which are considered as vital.
Landlord? Read about liability Spain rental VAT.
Exemption From VAT/IVA
A number of activities and services are exempt from IVA with the most important as follows:
- Educational Activities (Including private classes given by individuals)
- Certain Translation Work
- Insurance Services
- Postal Services
Self-employed workers and limited companies are obliged to make IVA returns both quarterly with the final return an annual return.
The quarterly returns are filed with Hacienda every three months and fall due on the 20th day of April, July, October and the 31st of January such that the return made in April relates to the period January - March and so on. The return made on January 31st is an annual summary and pertains to the entire previous year's IVA.
Fines & Surcharges
Surcharges are levied for incorrect or late returns so it is vital to send your invoices and receipts to the accountant well before the final date. The surcharges that can be imposed depend on the amount of money owed and how much time has passed since the tax payment fell due.
- 5% - If full amount paid within three months of falling due
- 10% - If full amount paid within six months of becoming due
- 15% - Where twelve months have passed since the amount became due
- 20% - After 12 months have passed a fine of 20% is added to the final amount
Sanctions may also be applied if the outstanding IVA has still not been paid at this point. These amount to 50% of any outstanding amount below €3000 and rise to 100% for higher amounts or where the business person has used false documents in order to try to hide the fraud.
The above rates of VAT are levied on the corresponding transaction within Spain. But what happens if you are dealing with customers in other countries in the EU, or indeed thoses that are not in the EU at all?
The following is a summary of the basic rules for most businesses. It should be reiterated that there exist any number of permutations so these must be considered as general guides only (you should check with your gestor/accountant).
The most important concept in determining if IVA is chargeable relates to determining the 'place of supply' of the goods of service.
Business to Business
If you are selling goods or services to businesses in another EU country it is not necessary to charge IVA as the place of supply is considered to be the country in which the client business is located.
You must ensure that they are a registered business and the easiest way to do this is to check if they are registered for VAT in their country however if you are content that they are a registered business in that country, their company registration number will suffice.
The client business is liable to pay their local VAT rate on the goods or services received and so the IVA should be zero-rated by way of a 'reverse-charge'.
Business to Consumer
If you are selling goods or services to an end customer i.e. not a business in another EU country then you should apply the relevant Spanish IVA rate where the annual amount of your sales does not exceed a specific amount (£70,000 in the UK).
If you have sales into a country over that amount you should register in that country as a distance seller.
You are therefore liable to account for the IVA charged in your IVA returns to Hacienda each quarter.