Spanish Tax Systems and VAT Regulations

Fundamental Tax Concepts

Taxes: Tax is government revenue created by law and enforceable by taxpayers covered by the same. A tax liability always arises caused by a specific taxable event.

Taxable Event and Residence

Taxable Event: This is the reason or the cause that has been made to pay the tax. It determines what is taxed, whether or not these are linked to an imposition or subject. Exempt tax: No tax is paid because there may be a deficiency.

Taxable Person: This refers to a natural (Physical) or legal person who must pay the tax.

Tax Residence: This is where you reside for Hacienda (taxable purposes). Hacienda is where you live; for legal entities, it is where the act of constitution is performed or where the company is registered. You can change the city and, therefore, the tax residence. All communications will be made to the fiscal domicile.

Calculating Tax Liability

Taxable Income: This is the amount by which we have to calculate the tax, specifying what the state is going to do. The Euro amount is the Taxable Base (BI).

Liquidable Base: This is where the calculation is performed.

Tax Rate (Gravamen): The percentage that is applied to the Liquidable Base (BL) to calculate the tax.

Amount of Tax: This is what you have to pay according to the percentage.

Tax Liability: This is different from the fee and represents what you owe the state. What I owe the state for tax is the same, but the first is paid on time and the second is paid late.

Understanding Value Added Tax (VAT)

The VAT (IVA) is the Value Added Tax. From a technical perspective, it is a tax that collects on consumption and taxes operations.

VAT Application and Territories

Operations affected by VAT:

• Delivery of goods and services.
• Issuance of services for business professionals.
• Intra-community acquisitions of goods.
• Imports of goods (for professionals, entrepreneurs, and individuals).

Where does it apply? It applies in the Peninsula and the Balearic Islands. It does NOT apply in the Canary Islands, Ceuta, or Melilla (where IGIC/IPSI applies). There are particularities in the Basque Country and Navarre.

How VAT Works: Input and Output

How does the tax work? VAT is divided into input VAT and output (repercutido) VAT.

• Input VAT: Acquisitions (materials, tools, etc.) made during a purchase.
• Output VAT: When selling products, you charge customers VAT.

VAT Liquidation: Output VAT minus Input VAT. If positive, it is income for the Treasury; if negative, the first quarter's fee is discounted.

VAT Rates and Deadlines

VAT Tax Rates:

• General: 16%
• Reduced: 7%
• Super-reduced: For raw materials.

Liquidation Table:

• 1st Quarter: Between April 1-20.
• 2nd Quarter: Between July 1-20.
• 3rd Quarter: Between October 1-20.
• 4th Quarter: Between January 1-30 of the next year.
• Annual Summary: From January 1-30 of the next year.

Simplified Regime and Record Keeping

Simplified Regime: This applies when the state determines the VAT based on certain measures, typically for those earning less than €450,000 per year.

Liquidation Scheme: VAT charged equals a fixed amount; VAT paid on purchases equals the book or fee paid.

Book of Purchases: This records all purchases made. It must include:

1. Date.
2. Name of the person or company.
3. Address of the seller.
4. NIF/DNI.
5. Taxable base (amount without VAT).
6. VAT amount.
7. VAT type paid.
8. Total amount paid.
9. Invoice number.

Book of Sales: Similar to the purchase book, but the NIF will be that of the person who has purchased from us.

When to pay: Most pay the tax every 3 months. There is a document to report the total for the 3 months, four times a year. At the end of the year, the state calls for an annual summary of those four quarters.