In Spain, there are several kinds of tax that must be paid. Of these, one of the most important is value-added tax (VAT). This is a tax that applies to products and also to services, regardless of whether they are offered in Spain or abroad.

VAT is classified as an indirect tax. Unlike most direct taxes, VAT does not depend on an individual's income, but rather on various factors related to the transaction itself – such as the type of product or service purchased – which determine the applicable VAT rate.

Although VAT is a tax that exists throughout the European Union (often referred to simply as "EU VAT"), each country can define its own VAT regulations, and there are mechanisms in place to facilitate tax filing throughout Europe. In this article, we will examine the specifics of VAT in Spain.

What's in this article?

• What are VAT rates?
  
• What are the different VAT rates in Spain?
  
• VAT for freelancers and businesses
  
• Which transactions are exempt from VAT?
  
• Which transactions are not subject to VAT?
  

What are VAT rates?

VAT rates are the tax rates added to the total value of a product or service. The tax rate on the sale will vary depending on the VAT rate applied to the product or service.

What are the different VAT rates in Spain?

On 28 December 1992, Spain passed the VAT Law, outlining the various VAT rates applicable within the country as specified by the government. While the three categories defined by the VAT Law (standard, reduced and super-reduced VAT) have remained unchanged, the percentage associated with each rate has fluctuated over time. For example, in 2012, there was a significant increase in VAT rates in Spain. Despite the variations in tax percentages and the specific products and services associated with each VAT rate over time, the three categories of VAT rates listed below have remained consistent for over 30 years.

Standard VAT

Of the three VAT rates in Spain, the standard VAT rate is the most commonly applied. This tax is applied to all goods and services that do not qualify for reduced VAT rates. The general VAT rate in Spain is 21%.

The list of products and services that attract the standard VAT rate in 2024 is very extensive, so we've compiled a few of the most common ones:

• Vehicles (whether purchased new from the factory or on the used market)
  
• Do-it-yourself products, such as drills and nails
  
• Household items (furniture, decorations, appliances, etc.)
  
• Drinks (fruit juice, soft drinks and all types of alcoholic drinks)
  
• Fashion items, such as trainers and T-shirts
  
• Petrol and other fuels
  
• Intermediate goods used in the manufacturing process of any type of item sold to the final consumer (such as raw materials). Note that even intermediate goods used in the production of any type of material for the health sector are also taxed at the general VAT rate.
  
• Services provided by a company in the funeral sector
  
• Sports events
  
• Aesthetic or beauty services (tattoo parlours, hairdressing salons, hair removal centres, etc.)
  
• Electronic devices (such as mobile phones, televisions and video game consoles)
  

Reduced VAT

This VAT rate is applied at a lower rate than the general rate: reduced from 21% to 10%. The reduced VAT rate may only be applied to the services and products listed below:

• Cultural activities (visiting a museum, attending a concert, using a library, etc.)
  
• Water used for irrigation or food for humans or animals
  
• Hospitality services (hotels, bars, etc.)
  
• Any product used in the production of food for humans or animals (animal feed, etc.)
  
• Utilities such as electricity, natural gas and any organic fuel
  
• Transport (international flights, train and metro tickets, etc.)
  
• Pharmaceuticals (plasters, bandages, gauze, etc.)
  
• Vision correction items (spectacle frames and lenses, contact lenses, contact lens solution, etc.)
  
• Refurbishment work on houses or apartments (although the reduced VAT rate only applies in certain cases, as indicated by the OCU)
  
• Property (including houses, apartments, storage spaces and garages)
  
• Livestock or agricultural sector products (fertiliser, animal feed, insecticide, etc.)
  
• Any service to clean a road, garden or public park
  

Super-reduced VAT

The third and final VAT rate in Spain is known as super-reduced VAT, where the rate is reduced to 4%. The current legislation only allows this very low tax burden on goods that are considered basic necessities. The list of items is rather short:

• Medicines for human use
  
• Physical media, such as magazines, books and newspapers. To qualify for the 4% VAT rate, at least 10% of the profits must come from the sale of the publication in question. Income from other related sources, such as advertising, cannot exceed 90% of the total income. Publications that consist entirely of advertising do not qualify for this VAT rate.
  
• Vehicles for persons with reduced mobility (PRM) or with a disability
  
• Implants, prostheses and wheelchairs
  
• Condoms and feminine hygiene products (tampons, sanitary towels, etc.)
  
• Government-subsidised housing (VPO, or "viviendas de protección oficial"). The super-reduced VAT rate applies both to the purchase of a subsidised property and to rentals where the contractual document includes an option to purchase the property at a later date.
  
• Services requested by dependent persons (also known as "tele-assistance")
  

Note that while the three VAT rates (general, reduced and super-reduced) have remained unchanged in recent years, the percentages associated with each rate may fluctuate based on political and social circumstances, as well as the current economic situation. Therefore, you should refer to current VAT rates from a reliable source, such as the Agencia Tributaria (the Spanish tax agency), which also outlines specific exceptions subject to a VAT rate of 0% or 5%.

Solutions such as Stripe Tax enable you to calculate and collect taxes automatically on all of your transactions. This way, you can make sure that you always apply the correct rates – wherever your customers are located. Additionally, Stripe Tax is regularly updated to reflect legislative changes in taxation and monitors your tax obligations, notifying you if you exceed the tax filing threshold in any of the 50+ countries where it operates (please see the updated list of excluded territories).

VAT rates in Melilla, Ceuta and the Canary Islands

The three VAT rates described above apply to most of Spain (all Spanish territory in the Iberian peninsula and the Balearic Islands), but in certain areas there is no VAT. This doesn't mean that products and services are untaxed in these areas – rather, there is a difference in name (IPSI and IGIC), rate and other relevant aspects.

IPSI

In Melilla and Ceuta, there is no VAT. Instead, the Tax on Production, Services and Imports ("Impuesto sobre la Producción, los Servicios y la Importación", or IPSI) is applied. All services are subject to this tax; for products, however, the tax is only applied if the delivery is carried out directly by the producers or manufacturers themselves.

Unlike VAT, the IPSI applied in these two autonomous cities has six different rates. The minimum rate is 0.5%, while the maximum rate is 10%. These rates have been changing since the law regulating the Tax on Production, Services and Imports came into force in 1991.

IGIC

The Canary Islands do not use VAT but instead apply their own indirect tax: the Canary Islands General Indirect Tax ("Impuesto General Indirecto Canario", or IGIC). The general rate is 7%, and there are five other rates ranging from 0% to 20%. The law regulating the IGIC is much newer than the law for IPSI, having been passed in 2012.

VAT for freelancers and businesses

Whether you work as a freelancer or for a company, you play a role that the government considers almost like a tax collector.

Every invoice that you issue to an individual or company in Spain must include VAT. To collect it, the end customer pays the appropriate amount of VAT to the freelancer/company, and it is then the freelancer/company's responsibility to remit the VAT received to the Treasury on a quarterly basis. This process does not apply to professionals in certain sectors, such as education, art, finance, insurance, and postal or courier services. To claim a refund, you must settle this tax by filling in several forms:

• Form 303: This document registers the amount of input and output VAT during the previous quarter.
  
• Form 349: Like Form 303, this quarterly form registers VAT for intracommunity transactions.
  
• Form 390: This document is an annual summary of the total VAT collected during the year.
  

Output and input VAT

As mentioned earlier in the discussion of Form 303, there are two types of VAT that you must consider and report on your returns: output VAT and input VAT. Understanding the differences between these two types of VAT is key to filing the forms accurately.

The first type, output VAT, refers to the VAT paid by customers on each invoice issued following the sale of a product or the provision of a service. For example, suppose a company's total gross turnover for a quarter is €15,000, which includes the taxable base of all invoices issued during that period. In this case, the VAT charged would be 21% of €15,000, assuming that all products or services are subject to the general VAT rate.

The calculation of the total output VAT is simple if you understand how to calculate VAT:

€15,000 x 21% = €3,150 total output VAT

Input VAT, on the other hand, refers to the VAT paid by self-employed individuals and companies when purchasing goods or services that are essential for carrying out their professional activities. When filing the quarterly tax return, the input VAT is subtracted from the output VAT to determine the final amount owed.

Going back to the previous example of a quarterly turnover of €15,000, let's assume that the business had to purchase two toner cartridges for printers and an office chair, amounting to a total of €400 for all three items. The input tax will be 21% of this amount: €84. After deducting the €84 of input VAT from the €3,150 of output VAT, the final amount to be paid to the tax authorities is €3,066.

Which transactions are exempt from VAT?

Now that you understand what it means to charge VAT to your customers, it's important to know that you do not always have to do so. The Agencia Tributaria defines the specific cases that qualify for VAT exemption. Here's a summary of the most relevant cases:

• Donations
  
• Health care
  
• Training courses
  
• Rent on a VPO that will become the usual residence
  
• Lotteries and bets (although if you win a prize, you can expect to pay tax)
  
• Insurance
  
• Savings and financial products
  
• Postal services
  
• Essential food products (bread, vegetables, fruit, dairy products, etc.)
  

Which transactions are not subject to VAT?

While both VAT-exempt and non-VAT transactions do not require VAT to be paid, there is a big difference between them. For the former, despite not having to pay any VAT, they should be included in your quarterly VAT return (using Form 303) because they do represent a taxable event – although they should, on paper, have a tax rate applied to them, the current legislation classifies them as exceptions where payment is not required. On the other hand, non-VAT transactions are not related to a taxable event, which means that they are not included in your VAT declaration (you do need to include them on Form 347 for transactions with third parties, though). Here are some examples of non-VAT transactions:

• Free samples, flyers and other promotional items
  
• Services provided free of charge by a company for promotional purposes to demonstrate its activities and results to potential customers
  
• Non-cash compensation to employees, such as a company car or restaurant vouchers
  
• Benefits provided free of charge to one or more employees under the terms of a collective bargaining agreement
  

As we have seen, there are several VAT rates that change depending on the products and services to be taxed, as well as the specific place in Spain where the operation is carried out: Peninsula and Balearic Islands, Ceuta and Melilla, or Canary Islands. Also, we should remember that some transactions are exempt from VAT or not subject to this tax. And, of course, it is important to stay up to date with the periodic changes to tax laws that might modify the current tax rates or the products and services that are included in each category. So, if you have doubts about how any of the details of VAT in Spain might affect your business, we recommend that you consult your tax advisor.