The procedure to get the VAT refund in Spain varies depending on the place where the tax payer is established. There are different rules for domestic business, EU entrepreneurs or non EU tax payers.
The VAT refund to domestic business
Spanish domestic business can get the refund according to the ordinary regime: generally speaking, during the calendar year, they can only carry forward the VAT receivable until the last VAT return, that is, the one corresponding to Q4 or December, depending on the reporting duties of the tax payer (quarterly or monthly).
However, they can opt to apply the monthly refund scheme, and apply for the refund each month. This option will oblige the tax payer to upload their invoices to the site of the Tax Office within four days, which might be burdensome for small business.
See our post about VAT compliance in Spain for more details.
You may also read our post about the so-called VAT- SII and the reporting obligations thereof.
The VAT refund in Spain to other EU companies or business
Note, in first place, that foreign business selling goods or services in Spain to end consumers -B2C- must charge VAT to them. Then they are obliged to submit VAT returns to the Tax Office according to the same rules than domestic business.
However, if the foreign business is engaged in B2B, that is, their clients or customers are other business (taxable persons, according to the VAT parlance) the rules change. As a rule, the non-established entrepreneur will not charge VAT to their Spanish clients. In these transactions, the reverse charge mechanism is applicable. Thus, the tax payer would be the recipient of the good or service. The recipient must self-charge VAT.
However, the foreign business may have paid VAT to its Spanish suppliers. The question is how this foreign business can get the VAT refund in Spain, since they are not submitting any VAT returns to the Spanish Tax Office.
Companies established in other EU country are always allowed to apply for the VAT refund in Spain. Although the procedure is different, they are subject to the same underlying requirements than Spanish business. Otherwise, Spain will breach the EU Treaties.
Currently, the VAT refund procedure is done online through the local Tax Authority of the country where the tax payer is based. A few considerations about this process:
- The application of the refund can refer to the previous calendar quarter or year. The deadline for submitting the refund application will begin the day following the end of each calendar quarter or year and will end on September 30 of the following year. For instance, VAT paid to a Spanish supplier on an invoice dated January 2nd, 2019 could be refunded from April 1st, 2019 to September 30th, 2020.
- The application for the VAT refund must exceed EUR 400 if it refers to a quarter or EUR 50 if it refers to the whole year. Any claim for a lower amount will be automatically rejected.
- EU entrepreneurs do not need to appoint a fiscal representative in Spain. In fact, they do not need one, since all the process is handled in their own country and before their own Tax Office.
- The refund can be wired to any bank account, not necessarily a Spanish bank account. The IBAN and BIC must be provided to the Tax Office. All the expenses shall be borne by the account holder.
The VAT refund to non-EU companies
If the foreign entrepreneur is not established in other EU country the application for the VAT refund must be submitted before the Spanish Tax Office. The process must be done online by means of tax form 361.
Non-EU companies are obliged to appoint a fiscal representative in Spain. The fiscal representative must be resident in Spain. One important issue is that the fiscal representative would be personally liable in case that the VAT refund turns out to be improper or undue (imaging that the fiscal representative inadvertently gets caught in a fake invoice scam or something similar). This is a risky job.
When the client is not established in other EU country, the refund of the VAT paid in Spain is subject to the existence of reciprocity in benefit of Spanish business where the entrepreneur is based. In this respect, the Spanish Tax Office has issued several rulings confirming which countries comply with this reciprocity rule. Unfortunately, this list is currently very short. The only countries which have been admitted are Monaco (24/3/1994), Canada (16/5/1994), Japan (10/9/1996), Switzerland (23/9/1996), Israel (23/1/2006) and Norway (28/1/2010).
It is noteworthy saying that United States based companies are not entitled to get the VAT refund in Spain. The Spanish Tax Office has reaffirmed this criterion in several rulings, on the grounds that Spanish business cannot get the refund of US VAT (or equivalent sales tax).
The reciprocity rule is not applicable to the VAT paid in Spain for the acquisition of templates, molds and equipment. Likewise, the VAT refund is always admitted for VAT paid relating to hospitality, catering and transport services, linked to attendance at trade fairs, congresses and exhibitions held in Spain. In other words, any company, regardless where it is located, can apply for the refund of the VAT paid for these goods or services.
For further information on this topic, please feel free to contact the author at firstname.lastname@example.org