VALUE ADDED TAX IN SPAIN (VAT)

What is VAT?

The VAT (Value Added Tax) is an indirect tax, applied in Spain (mainland and Balearic Islands), to tax consumer goods: it is divided into three rates depending on the nature of the product or service. 

VAT is intended for engrave the realisation of professional activities and the deliveries of goods by legal entities (companies or self-employed persons) to the consumersThe VAT is ultimately paid by the VAT payers.

VAT is said to be a indirect taxbecause, is not linked to the income of the consumer (unlike the IRPFwhich is related to earnings).

VAT attaches to the goods or services themselves, irrespective of on whom it falls or who ends up paying it, so that all consumers end up paying the same amount for VATregardless of their income or wealth.

In fact, VAT is a regressive taxThe process: it adds up along the production and supply chains until it reaches the final customer.

Entities that act as VAT intermediaries act as collectors for the State, as they bear it and pass it on in a chain down to the consumer.

VAT rates

As dictated by the VAT Law (Law 37/1992 of 28 December 1992)VAT has three typesclassified according to the type of good or service:

• VAT general.
• Reduced VAT.
• Super-reduced VAT.

There are also certain products that are exempt from VAT, as well as circumstances in which it does not make sense to apply VAT..

21 %: general VAT

VAT at 21 %, known as general VAT, is the most common tax rate in Spanish territory, because it is the default rate applied to any goods or services marketed in Spain.

The current VAT rate in 2021 has been in place since it was raised in September 2012 from 18 %: two years earlier, it had risen from the traditional 16 % to 18 %. Although no further increases are expected in the near future, the state is gradually incorporating more and more products and services into the general VAT rate.

10 %: REDUCED VAT

VAT at 10 %, known as reduced VAT, mostly affects foodstuffs (with the exception of those considered basic necessities), and is levied on hotel and catering services, passenger transport and the sale of real estate.

The following is a list of the main groups of goods subject to VAT under 10 %:

1. Foodstuffs intended for human or animal consumption (with the exception of alcoholic beverages, which are subject to general VAT).
2. Goods or services related to forestry, livestock or agricultural activities (fertilisers, seeds, herbicides).
3. Water (both potable and irrigation)
4. Devices intended to compensate for physical deficiencies (glasses, contact lenses, prostheses)
5. Medical devices, equipment, instruments and materials intended for the treatment, prevention or diagnosis of disease (including medicinal products for use in animals and pharmaceutical products for direct use without medical prescription).
6. Sale and alterations or repairs of real estate (dwellings, garages, annexes).
7. Leases with an option to purchase real estate.
8. Carriage of passengers and their luggage (land, sea or air).
9. Hotel and restaurant activities and all food and beverage supplies.
10. Health and dental care activities.

4 %: SUPER-REDUCED VAT

VAT at 4 %, known as super-reduced VAT, is levied on goods considered to be basic necessities.

1. Basic foodstuffs: bread, flour, milk, eggs, cheese, fruit, vegetables, cereals, tubers and pulses.
2. Medicinal products intended for human use as well as medicinal substances and all intermediate products used to obtain them.
3. Press and books with content that is not exclusively promotional or advertising.
4. Motor vehicles intended for use by persons with reduced mobility.
5. Prostheses and internal implants for people with some degree of disability.
6. State subsidised housing (VPO) delivered by the property developer.
7. Lease-purchase transactions on VPOs.
8. Home help services, resilience, residential care and day centres.

VAT exempt products

The VAT Law also provides for a number of cases in which products are not subject to VAT; here are some goods and services where VAT does not apply:

1. Insurance, reinsurance and capitalisation operations.
2. Mediation services to natural persons.
3. Financial products (but not financial advisory services).
4. Postage stamps.
5. Leasing transactions of VPOs intended to be a principal residence (as opposed to renting by companies).
6. Professional medical and health care.
7. Approved teaching given in official centres (public or private), as well as private training in approved subjects.

Difference between exempt VAT and non-taxable VAT

We speak of exempt VAT because the law expressly includes a series of cases in which the tax rate to be applied is none of the three VAT rates and, therefore, no tax is applied to certain supplies of goods or services.

See more about VAT-exempt professional activities

On the other hand, we speak of non-taxable VAT in transactions not covered by the VAT Law, i.e. commercial transactions of products or services not covered by the law (but not therefore unlawful).

A typical example of non-taxable VAT is a transaction between private individuals (e.g. sale and purchase of second-hand goods). In these cases, VAT does not apply to the sale because it is not covered by the law.

However, it can be more clearly defined as follows: in order for VAT to arise, the party marketing the product or service must be a legal person.

Other indirect taxes payable in Spain: IGIC and IPSI

VAT is not the only consumption tax applied in Spain: in the Canary Islands the IGIC is applied, and in the autonomous cities of Ceuta and Melilla the IPSI is used in a similar way.

These excise taxes differ in the classification of goods and services affected by the tax, since they have totally different sections with each other.

The IGIC

The Canary Islands General Indirect Tax (IGIC) is applied in the Canary Islandsand consists of the following types:

1. 0 %: first need. Water, medicines, basic foodstuffs, books and air travel.
2. 3 %: reduced. Electrical energy, steam, gas and hot water; appliances and accessories to remedy physical deficiencies.
3. 7 %: General. All cases not covered by the other types.
4. 9,5 %: increased. Imports of vehicles.
5. 13,5 %: special increased. Alcoholic beverages, jewellery, perfumery and motor vehicles with fiscal power exceeding 11hp.
6. 20 and 35 %: special. Dark and blond tobacco, respectively.

The IPSI

The Tax on Production, Services and Imports (IPSI) applies in Ceuta and Melillaand consists of the following types:

1. Type 1 %The main services are: one-fork restaurants, cafeterias, electricity and taxis.
2. Type 2 %The following categories are included: restaurants with two forks or more, special category bars and the rest of the hotel and catering trade.
3. Type 4 %General real estate, renovation of dwellings and commercial premises.
4. Type 8 %Telecommunications, broadcasting, television and telematic services.
5. Type 10 %real estate constructions.