The use of Xero in Spain is becoming increasingly popular, although it is still far from its use in other countries. Apart from language barriers (Xero is not translated into Spanish), the main issues are accounting and tax reporting.

Unlike in other countries (UK, US, South Africa, Australia…), Xero is not tailored to meet reporting requirements in Spain . Therefore, it requires some customization. But apart from that, there is not any particular reason  preventing the use of Xero in Spain.

Tax reporting in Spain is not just sending VAT and Corporation Tax. Many other reports must be sent to the Tax Office on regular basis (EU sales report , customers & suppliers report, related transactions report, withholding taxes – PAYE and others-…). Even the ordinary VAT returns require to provide the tax info under a very complex layout. Without a proper parametrization, the use of Xero in Spain for tax reporting becomes a daunting challenge, frequently leading to costly mistakes.

In our experience, the main customization areas are the following:

• Contact info and grouping. Without that, certain tax reports cannot be produced
• Setting up the correct tax rates (splitting input and output VAT, regional reporting and the like). At least eight tax rates must be created, and this only for Spain. If the company is involved in VAT distance sales, further tax rates and controls must be set up.
• Coding the Chart of Accounts according to the Spanish Chart of Accounts, or the business specific CoA. Although the use of the coding is voluntary, the real truth is that without the official codification the production of  year end accounts and Corporation Tax becomes difficult, if not impossible.
• Assigning the correct tax rate to each contact & account
• Withholding tax treatment. Read our post on how to deal with withholding taxes in Xero
• Pay run set up (creating pay items correctly- taxable, nontaxable…)
• Fixed assets treatment (setting up the correct depreciation rates and methods)

Once these tasks have been accomplished, the software will contain all the info needed and this would be  correctly organized. True, Xero in Spain does not allow direct reporting to the Tax Office or Registrar of Companies. I do not expect that this will happen anytime soon.

However, with the proper tools and some computing skills and experience, it is not difficult to extract and organize the accounting information provided by Xero to produce the tax and accounting reports required by the Law.

Emilio Alvarez, Head of Tax Partners, is a Xero Certified Advisor. Tax Partners provides accounting and tax services to business using Xero in Spain. Do not hesitate to contact us for further information.