VAT compliance in Spain

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The main obligations of a business operating in Spain relate to VAT, Corporation Tax and Withholding Tax. This article deals with the compliance obligations regarding Value Added Tax (“VAT”).

In Spain business must file monthly or quarterly VAT returns depending on their size. Small and medium size business (turnover the previous year below EUR 6 Millions) file quarterly VAT returns, while large business must file monthly returns. The tax return must be filed by the 20th day of the month following each tax period. For instance, in case of quarterly returns, the deadline for filing VAT returns are the 20 of April (for the first calendar quarter), the 20 of July (for the second quarter) and so on. In case of monthly tax returns, the tax return corresponding to January must be filed by the 20 of February and the like.

In case that in any tax period the balance between input VAT – or VAT receivable – and output VAT – or VAT payable – is favourable to the tax payer, the balance must be carried forward to the next tax period . The refund of the balance favorable to the tax payer is only permitted in the last tax period, that is, the one corresponding to the october – december quarter (quarterly filing) or to december (monthly filing). Then the Tax Office has six months to review the accounts of the tax payer and release the refund. Of course, the tax payer can opt to carry forward the balance to the next tax period instead of claiming the refund. In fact, he should do so if he foresees that in the following tax period he will generate enough VAT payable as to offset said balance.

To avoid the lengthy time required to get the refund of VAT in those business that normally have a favourable VAT balance (for instance, exporters, which normally have little output VAT because they perform full exempt deliveries) a special optional tax scheme exist. In essence, they must register in a special list (called REDEME) and file monthly returns, regardless their size. In each return they can claim the refund of the VAT owed to them. However, they must submit to the Tax Office each month, together with the tax return, a file listing  all their invoices, either received or issued.

Besides the monthly or quarterly tax returns, an annual summary report must be filed in January of every year in respect to all the transactions carried out the previous year.

Entrepreneurs doing intra comunitary acquisitions or of goods and / or services or deliveries  must file the intra comunitary report. This report must be filed in the same dates as explained above, depending on the size of the business (monthly or quarterly). Likewise, the instrastat declaration must also be filed every month if intra comunitary transactions exceed EUR 250.000 per annum.

For legal persons (i.e. companies) e-filing is compulsory. This means that every company must open a virtual account within the tax office to file the tax returns and communicate with the Tax Office. The opening of such virtual account is not that easy. A certificate from the Mercantile Registry proving the existence of the company and the powers of the person opening the account must be submitted when the application is done. Individuals can  file paper VAT returns.