Tax in Spain: what you need to know

To carry out business transactions in Spain, you need to be aware of all the existing tax obligations in order to avoid any potential setbacks. Value added tax (VAT) is one of the taxes you need to be familiar with before setting up your business in the country. Immo 365 Costa Brava will show you how impuesto sobre el valor añadido (IVA) works. We also offer you our expertise in property investment in Spain.

VAT rates in Spain

The Spanish equivalent of VAT, the IVA applies mainly to natural and legal persons in the country. Foreigners who sell products or provide services are also subject to it. Exactly as in France, IVA is added to the sale price of a good or service.

Three different VAT rates in Spain are applied depending on the nature of the products and services.

The general rate of 21%

In Spain, the standard VAT rate was set at 18% as in France. Faced with the economic crisis and numerous frauds, the government made a slight change. IVA is now 21% by default. This standard rate, which came into force on 1 September 2012, applies to the vast majority of sales of goods and services. Cosmetics, tobacco, alcohol and personal hygiene products are subject to it.

For some years now, certain services that used to benefit from a tax reduction have also been taxed at 21%:

• optical products,
• funeral services,
• hairdressing and beauty chains,
• gardening products, theatre and cinema admission.

With theincrease in the initial rate of IVA, the tax burden has become greater for consumers. Businesses are not really affected, however, because in 2012 the government did not touch corporation tax (IS). The rate has remained at 30% since 2008.

Also, in neighbouring countries such as Germany and Italy, VAT is 19% and 22% respectively. The average in the European Union (EU) is 21.13%.

The reduced rate of 10%

The Spanish government has introduced an exceptional VAT rate of 10%. It applies to the sale of food products, in this case meat, water, fish, etc. The reduced VAT rate of 10% also applies to passenger transport services, hotel and catering services and sanitary products. However, the purchase of real estate is excluded. Compared with France, taxes on property transactions are relatively more advantageous. For example, real estate capital gains tax in Spain is taxed at 19% for all non-residents.

The super-reduced rate of 4%

With a view to giving citizens easier access to certain products, the government has defined a super-reduced IVA. The rate of this tax is set at 4% and applies mainly to basic necessities such as bread, flour, cheese, eggs, vegetables and fruit. This exceptional VAT also applies to school equipment, newspapers, books, medicines and pharmaceutical items.

Special schemes

In Spain, the law has made provision for special IVA schemes with slightly different rules. One example is the Impuesto General Indirecto Canario (IGIC). In force in the Canary Islands since 1993, this tax replaces VAT, which does not exist on the island. It is levied on imports of goods, acquisitions of products and services by companies and professionals. When a Canary Islands company carries out transactions with mainland Spain, this is considered to be a transaction without IVA. Since January 2019, the basic IGIC rate has been set at 6.5%.

VAT does not apply to Melilla or Ceuta either. Instead, the authorities have introduced the Impuesto sobre Producción Servicio e Importación (IPSI). Since 13 January 2019, its rate has been 0.5% for services relating to online commerce, advertising and marketing. In Ceuta, the gambling industry is subject to the same rate, provided it has a permanent establishment in the territory.

Activities exempt from VAT in Spain

In Spain and neighbouring countries, certain activities are not subject to IVA, IPSI or IGIC. This is the case, for example, with sports services offered by public bodies or associations. Educational activities and postal services are also exempt. If you are an artist, composer, writer or translator of scientific and artistic works, you are exempt from this obligation. The same applies to cultural services, in this case museums, conferences, libraries and seminars.

IVA: who should charge it?

This impôt in Spain is applied on consumption. Its management is mainly the responsibility of businesses and professionals who supply goods and services. The latter act as collectors of the tax from consumers, before passing it on to the tax authorities.

Any entity or individual carrying out an economic activity, whether selling goods or providing services on Spanish territory, is required to charge IVA. This includes both resident and non-resident companies operating in Spain, as well as self-employed professionals. The applicable VAT rates vary according to the type of good or service provided, reflecting different categories of rates: general, reduced and super-reduced.

Some operations may, however, be exempt from VAT or subject to a special regime, depending on the nature of the activity and the legal provisions in force. Self-employed entrepreneurs and small businesses can also benefit from simplified schemes, making it easier for them to manage IVA.

The responsibility for invoicing IVA thus rests on the shoulders of economic players who sell goods or provide services in Spain. You must ensure that this tax is collected and paid correctly, in accordance with Spanish tax legislation.

VAT on property in Spain

In Spain, the VAT applied to the purchase of a new property is 10%. It also applies to any annexes acquired with the new property, in this case storage rooms, parking spaces, etc. The rate is reduced to 4% if the property is publicly subsidised. The new purchaser must pay IVA when the property is transferred. If the property is purchased off-plan in advance, then the tax in Spain on property can be paid in monthly instalments before the deeds are signed.

As regards the tax on property in Spain, IVA is not payable on the purchase of a second-hand property. However, you will have to pay transfer tax represented by the Impuesto de Transmisiones Patrimoniales (ITP). The ITP rate varies from one Autonomous Community to another. It ranges from 4% in the Basque Country to 10% in Valencia and Galicia.

When you build your own home by hiring an architect, for example, you are subject to self-build VAT, the rate of which is 10%.

How to reclaim the VAT paid in Spain?

As in France and other EU countries, you can claim back the VAT already paid. To do this, you must keep the invoices. In accordance with the law, the claim may relate to:

• expenses relating to means of transport (fuel, toll hire, taxis, etc.),
• restaurant expenses,
• accommodation expenses,
• exhibition and trade fair entry fees,
• luxury goods, entertainment and leisure.

To apply for a refund, you must approach the tax authorities with the periodic IVA return. If you operate in Spain, you can also apply for a refund of the VAT charged to you on Iberian soil. You can do this online at impots.gouv.fr.

If you are French and planning to invest in Spanish towns, ask Immo365 Costa Brava for help. We can tell you all about IVA, capital gains tax and the tax obligations of a property owner.