Spanish VAT law eased for businesses and the self-employed

by Lorraine Williamson
VAT law

The Spanish tax authorities are changing current criteria and relaxing the VAT law for companies and the self-employed. From now on, they will be able to deduct the costs of electricity, water, gas and internet of the home proportionally from VAT (IVA, or Impuesto sobre el Valor Añadido). 

This is stated in two new binding consultations dated 25 September and 2 October 2023. The condition is that part of the property is not only used privately. In part, it must also serve to carry out their economic activity. It is explicitly about the deduction of proportional use. That is, in what corresponds to the use that the entrepreneur makes of it for the company. In addition, this new measure in the Spanish VAT law opens the door for refunds for taxpayers. They can reclaim what they have overpaid in the last four years. 

Spanish VAT Law 

The Central Economic-Administrative Court (TEAC) has already implemented this change of criterion in a resolution of 19 July. In this resolution, the court ruled that the Spanish VAT law is in conflict with the European VAT Directive. Now, the law prohibits self-employed people and prohibits entrepreneurs from deducting housing costs, even if they are partly used for economic activities.  Article 168 of the European directive does allow the costs of real estate used for business and private purposes to be deducted. Here too, VAT deduction applies in a proportional manner. The Directorate-General for Taxation (DGT), the governing body of the Ministry of Finance, welcomes the new TEAC criterion. 

Cogesa Expats

Previous consensus 

Earlier, an agreement was reached on the abolition of the quarterly and annual tax return for the self-employed. This was indicated in the European Directive 2020/285, which entered into force on 18 February 2020 and must be transposed in Spain by 1 January 2025.  This tax exemption will apply to those with an annual turnover of less than €85,000. This is despite the fact the directive allows Member States to raise this threshold to €100,000. 

Also read: Spanish tax authorities tighten controls on business invoices

You may also like