Self-employed in Spain are preparing for a series of changes to their VAT obligations. These updates are designed to streamline tax processes. However, they will require self-employed individuals to adapt how they handle their quarterly VAT filings.
From 2025, it is expected that freelancers earning under €85,000 annually will be exempt from paying VAT under a new special regime called the ‘IVA franquiciado’ (franchise VAT scheme). It is derived from European Union Directive 2020/285. The franchised VAT scheme is a special regime under Value Added Tax (VAT) and is designed to simplify tax obligations for freelancers and small businesses. Under this franchised VAT scheme, businesses that meet certain criteria may be exempt from submitting quarterly VAT returns. Additionally, in some cases, they may be exempt from issuing invoices that include VAT.
Benefits and disadvantages of change in VAT rules
The franchised VAT model is already in use in other European countries. It is governed by Council Directive (EU) 2020/285, dated 18 February 2020. Moreover, it will provide a significant benefit to certain businesses and freelancers, as they will no longer need to declare VAT or use the 303 form. The scheme will also reduce administrative costs. There will no longer be a need to submit multiple quarterly tax forms. Additionally, the risk of penalties will be significantly lowered, as fines for late submission of VAT returns are eliminated. Furthermore, freelancers and small businesses can also afford to offer more competitive prices for their services, as they will no longer be required to include VAT on client invoices.
However, this changed VAT scheme for the self-employed comes with certain disadvantages. One of the most significant is the loss of the ability for freelancers to deduct VAT paid on business expenses. This is particularly impactful for self-employed with high production costs or those who need to purchase expensive materials to carry out their work.
What are the new self-employed VAT rules in Spain?
Under this new franchised VAT scheme, freelancers or small businesses with an annual turnover of less than €85,000 will soon not be required to:
- Submit quarterly VAT returns.
- Include VAT on their invoices.
It’s also worth noting that if your business operates at an intra-community level within the EU, the threshold for applying for the franchised VAT scheme may increase to €100,000.
However, ahead of that change, once approved by the government, new measures will come into play, affecting the quarterly VAT declarations.
A new approach to VAT error corrections
One of the most notable changes will be the introduction of a new system for correcting VAT filing errors. This is called ‘rectified self-assessment’ (autoliquidación rectificativa). This new method will unify the process for adjustments, whether in favour of the tax office (previously known as ‘supplementary declaration’) or in favour of the freelancer, who previously had to submit a separate request for correction.
The objective behind this new approach will be to speed up the error correction process. Until now, this has involved lengthy waits for responses from Spain’s tax agency, often stretching over several months. This unified system aims to make the rectification process more efficient and less time-consuming for the self-employed.
Telematic filing for cross-border operations
Another significant change concerns the filing procedures for VAT on transactions with non-EU countries. Models 360 and 361, used for these declarations, will now only be accepted electronically. Freelancers will need to submit Model 360 to claim back VAT. Herewith, they have to provide supporting documentation like invoices and a Unique Administrative Document (DUA). This counts particularly for imports over €1,000, or €250 for fuel imports.
In addition, representatives of freelancers, such as tax advisors, will have the ability to submit these documents on behalf of their clients in a streamlined process.
These reforms are part of a broader push to simplify and modernise the VAT management process for freelancers. They will make it easier for them to comply with tax obligations while reducing administrative burdens.
Also read: Social security contribution for the self-employed will be linked to income