Most people who have done business or spent time in the European Union are familiar with VAT tax (value-added tax), although it can get a bit complicated for foreign business owners operating in Spain. Known as “IVA” in Spanish, Spain’s VAT legislation has all the twists and turns one would expect in international tax codes.
Foreign businesses need to know ahead of time whether they will be legally required to apply for a VAT number and charge their customers this tax on the goods and services they sell. Depending on the country in which your company is based, you may be required to have a VAT registration regardless of your business’ income. In many cases, having a VAT ID number can actually be advantageous from a tax planning perspective, even if you are not required to have one.
One of the main benefits of having a VAT Spain registration is the possibility of a VAT refund for certain eligible business expenses. The best way to be sure your business is compliant with your tax liabilities and getting as much money back as possible is with the help of a legal professional specializing in Spanish business and tax legislation.
What is VAT in Spain?
VAT tax is a type of consumption tax, similar to a sales tax, that is added at each stage in which value is added to a good or service. The rates vary depending on the nature of the product or service, from around 4% to 21% of the base cost. All Spanish businesses selling to Spanish customers are responsible for VAT, as well as Spanish businesses selling to non-EU customers. The rules governing tax obligations when selling to other EU-member nations are somewhat complex and depend on the specific circumstances of the transaction and nature of the business activities.
Foreign businesses operating in Spain must register to pay VAT if their income is over the country’s minimum sales threshold, and in some cases, must register no matter what their revenue is. However, even if you do not legally have to have a VAT number, you may be able to reduce your tax burden through a VAT refund in Spain.
Who is eligible for a VAT refund in Spain?
A business with VAT registration can reduce their tax liability by deducting VAT paid on certain categories of business-related expenses. Generally, these include things like business travel expenses (e.g. hotels and meals), transportation (e.g. rental car, fuel, public transportation), professional fees, imports and logistics, telecommunications services, R&D, and select others.
To file a VAT refund claim, you will need to have documentation of your expenses, including the original receipts and invoices and secondary documentation, such as business expense reports or credit card statements. In Spain, the claim needs to be filed at the local tax authority in the local language.
VAT Spain registration number
In Spain, the VAT number is known as a “NIF” or “CIF” (Número/Código de Identificación Fiscal). If you are starting business activity in this country as a foreigner, you may have already applied for a NIF, since it is required for many things. Your legal or tax advisor may be able to take care of most or all of the paperwork involved in applying for a VAT Spain ID number provided you have granted them power of attorney.
When it comes to VAT in Spain, there is a labyrinth of different reciprocity agreements with other countries in and out of the EU, all of which will affect what can and cannot be deducted from your business’ tax liability. For this reason, to ensure you don’t pay any more than necessary, having the help of a professional is truly invaluable for foreign businesses in Spain.