VAT in Spain: what is VAT and how is VAT charged in Spain?
The number of people immigrating to Spain every year is exponentially high, mainly through the Canary Islands.
Spain is a country of great interest to immigrants in general, especially digital nomads, both because it is on the European continent and because of its Mediterranean climate, culture, language, etc.
However, when immigrating to Spain, whether permanently or habitually, you will have to worry about tax issues, especially IRPJ, the Spanish income tax.
I've written several articles on IRPF, the most recent being this one.
So, as well as worrying about income tax, you need to be careful and aware of VAT.
Before going into an explanation of VAT, it is important to talk about tax residency.
What is Tax Residency?
Tax residence is the place where an individual carries out their vital economic activities. This place can be their fixed residence or their habitual residence.
Digital nomads do not have a fixed residence, but they do have a habitual residence. Therefore, the claim that, because they have no fixed abode, they don't have to file their taxes anywhere is false.
It doesn't matter if the digital nomad travels every 3 months, every month or every week, everyone in the world will have a tax residence somewhere.
If you declare taxes for two countries at the same time, you will have double tax residence, i.e. you will be subject to declaring and paying taxes for two countries at the same time.
What is VAT?
VAT (Value Added Tax) is a tax levied by the member countries of the European Union on consumption. This tax is levied on both products and services.
VAT is regulated by the European Union through Directive 2006/112/EC, and in Spain it is regulated by Law No. 37/1992. VAT rates in Spain vary between 21% and 4% depending on the type of activity carried out.
The list of activities with their respective rates is detailed in a list provided by the Spanish tax agency, which is updated annually.
The general rate is 21%, but there are some activities that are exceptions, such as:
a) Passenger transportation: 10%
b) Hotel, camping and spa services, restaurant services and the supply of food and drink for on-site consumption: 10%.
c) Books, newspapers and periodicals that do not exclusively or mainly contain advertising, and complementary items: 4%
d) Medicines for human use, galenic forms, magistral formulas and official preparations: 4%
e) Imports of works of art, antiques and collectors' items: 10%.
f) Supply of electricity, natural gas and natural fuels: 10%.
All activities that are not on the list with differentiated rates will fall under the general rate of 21%.
Anyone wishing to do business in Spain, whether as a self-employed person or as an entrepreneur, needs to know about VAT in order to plan their business.
In this scenario, it is essential to carry out tax planning in order to avoid problems the Spanish tax authorities.
If you are interested in hiring professional legal services related to tax planning, we are a law firm specializing in the subject. To do so, please contact us via WhatsApp or email: thyanipuppio@gmail.com
A Warning about Dual Tax Residency
As mentioned above, individuals who have dual tax residency need to declare their taxes for two countries at the same time.
However, what few people know is that when you are a tax resident in a particular country, the principle of universal income declaration prevails. In other words, taxpayers must declare all their income, regardless of its origin.
Generally, individuals have the habit of declaring income from their country of origin only in their country of origin, and income from Spain only in Spain. However, by failing to comply with the duty to declare assets universally, the taxpayer commits a crime: tax evasion.
Spain exchanges information on tax matters with various countries around the world. This exchange of information is carried out using artificial intelligence, which searches and cross-checks the data of its taxpayers in order to detect fraud.
In addition to the risk of being held criminally liable for tax evasion and, as a result, having your passport invalidated, the amounts evaded can be collected by the tax authorities, with interest and monetary correction.
Those whose passports are invalidated will not be able to leave the country and will automatically have their visas invalidated, since Spain requires individuals to have a valid passport in order to apply for and remain on visas. In other words: no passport, no visa.
Remember: tax evasion is not just a crime in Spain.
If you are interested in hiring professional legal services to avoid double tax residency, tax evasion and double taxation, we are a law firm specializing in the subject and we can help you, just get in touch via email: thyanipuppio@gmail.com, or via WhatsApp.
