In Spain, both companies and the self-employed act as collection agents. This means that they invoice their customers for products or services subject to value-added tax (VAT), collect the corresponding tax amount, and pay it to the Spanish tax agency, the Agencia Tributaria (AEAT). To do this, business professionals must complete tax forms such as Form 303, which is used to process quarterly VAT returns.

While the VAT collection process is relatively straightforward, there can be situations where payments to the AEAT aren’t made on time. In these cases, the AEAT has the power to impose penalties. Here’s what businesses need to know about VAT penalties in Spain.

What’s in this article?

• What are VAT penalties?
  
• What types of VAT penalties are there?
  
• What are the penalties for errors in VAT declarations?
  
• How can businesses avoid VAT penalties?
  

What are VAT penalties?

VAT penalties are measures that are taken by the AEAT when it identifies irregularities related to a company’s VAT obligations. These penalties can include fines, which can vary depending on factors such as the seriousness and willfulness of the VAT collection agent’s actions.

The AEAT imposes VAT penalties primarily to collect the amount owed and prevent any government losses. Another reason for applying these measures is their deterrent effect, as the fear of penalties can prompt other liable taxpayers to comply.

What types of VAT penalties are there?

VAT penalties in Spain fall into three categories.

• Surcharges: A penalty that is a percentage of the amount owed. This percentage can increase based on how long the taxpayer has delayed in addressing their overdue VAT.
  
• Financial penalties: A fixed or proportional fine.
  
  • Fixed: The payable amount remains constant; it does not fluctuate based on the infraction.
    
  • Proportional: The payable amount varies based on the VAT amount owed to the AEAT. The larger the amount owed, the greater the possible fine.
    
• Criminal liability: A penalty that carries criminal consequences because the act is classified as a crime. A financial penalty is also added to the liability of a court proceeding.
  

What are the penalties for each infringement in VAT declarations?

The penalties imposed by the AEAT vary significantly based on the infraction, its seriousness, and whether it is a repeat offense. Penalties also vary depending on whether the late VAT return is positive or negative (i.e., the business owes the AEAT or the AEAT owes the business).

If the late VAT return result is zero or negative

Business professionals sometimes think they are exempt from filing a VAT return if they haven’t made any sales during the quarter. However, VAT law mandates that for informational purposes a return must be filed, indicating that no economic activity occurred during the tax period. Additionally, keep in mind that if a business has purchased goods or services for professional activity despite not having registered sales, the business can ask for compensation or a VAT refund.

If the return result is zero or negative—meaning the business paid more VAT than was collected and the AEAT must now compensate or refund it—the business will still be subject to a penalty if its filing was late. The type of penalty will depend on whether the declaration is completed before or after the AEAT sends a demand for payment.

• Before receiving a demand for payment: €100 fixed financial penalty
  
• After receiving a demand for payment: €200 fixed financial penalty
  

If the late VAT return result is positive

Regardless of the reason a delay in VAT declaration occurs—mistaking or forgetting a deadline, health issues, insufficient funds, etc.—a surcharge or penalty will be applied to the amount due.

Before receiving a demand for payment

If a VAT collection agent files a late VAT declaration with a positive result before receiving a demand for payment, a percentage surcharge will be applied to the amount due. The percentage corresponds to how long after a deadline the VAT is declared.

• Between 1 day and 3 months: 5%
  
• Between 3 months + 1 day and 6 months: 10%
  
• Between 6 months + 1 day and 12 months: 15%
  
• Later than 12 months + 1 day: 20% + late payment interest of 4.0625%
  

To settle these surcharges, VAT collection agents can either visit an AEAT office in person or fill out the specific form for this procedure online. Alternatively, businesses can fill out Form 303 as usual for the quarterly VAT return. After entering all the data, under “Amount of income,” the amount due will appear, which will reflect the total, including the corresponding surcharge applied.

After receiving a demand for payment

If the AEAT has sent a tax notice, it will impose a financial penalty based on the seriousness of the situation. Fines range from a minimum of 50% for minor infractions to a maximum of 150% for very serious ones. See more about the severity of infractions below.

Committing a minor, serious, or very serious infringement

When an infraction occurs, the severity of the situation must be assessed to determine the applicable penalty. If a business owner receives a notice from the AEAT, the penalty will vary based on the type of infringement.

Minor

To be considered minor, the maximum amount of VAT owed due to an infringement is €3,000, whether it was concealed from the AEAT intentionally or unintentionally. If the overdue VAT amount of the infringement exceeds €3,000.01, the infraction will also be considered minor—as long as the information was not concealed. In both cases, the penalty is 50% of the unpaid VAT amount.

Serious

The infringement is considered serious if the overdue VAT amount is at least €3,000.01 and information was concealed from the AEAT. If the amount is lower, it is still considered serious if the taxpayer has committed one or more of the actions below.

• Of the total overdue amount, 50% or less pertains to the output VAT, which is the VAT charged to customers through issued invoices.
  
• Of the total overdue amount, between 10.01% and 50% has not been paid to the AEAT due to errors in the preparation of the VAT record books.
  
• The taxpayer uses invoices or other accounting documents that are incorrect but not deemed fraudulent, and they represent no more than 10% of the total overdue amount. In other words, the documents have not been used to willfully mislead the AEAT.
  

For a serious infraction, the penalty is a proportional fine ranging from 50% to 100% of the VAT amount due. The percentage varies based on how often the taxpayer has committed infractions and the economic loss to the government.

Very serious

If a business concealed VAT charged to customers, and that amount is over 50% of the output VAT reported, or if fraudulent means are used as defined by Law 58/2003, it will be classified as a very serious infringement. Here are the acts that fall into this category.

• Using another person's identity to complete a VAT return, regardless of whether they are aware or not
  
• Using false invoices or other accounting documents that represent at least 10.01% of the unpaid VAT to the AEAT
  
• Intentionally committing significant irregularities, such as failing to maintain business accounts
  

For very serious infringements, the penalty is a proportional fine ranging from 100% to 150% of the unpaid VAT amount, depending on the damage caused and recurrence of such infringements.

How can businesses avoid VAT penalties?

While VAT penalties can be quite high, they are designed to be deterrents, and they are not difficult to avoid. Here are some tips to ensure businesses always comply with their VAT obligations.

• Declare VAT on time: Submit the necessary tax form to declare VAT by the due date, even if the business has not conducted any commercial activity. This means using the forms required for filing when the VAT collection agent obtains the certificate of VAT taxable person status, including the following: Forms 036, 037, 035, 347, 349, and 390. Note that Form 390 is not required if information is submitted through Immediate Supply of Information (SII).
  
• Learn about Spain’s VAT rates: Find out about the different VAT rates in Spain, and use the correct percentages on the business’s invoices. Using an automation tool that automatically calculates and collects VAT on all sales, such as Stripe Tax, can make this process much easier. Stripe Tax also helps businesses create reports on the taxes they’ve collected and makes the declaration process easier.
  
• Remember to use Form 347: Keep in mind that even though businesses don’t need to pay tax on transactions that aren’t subject to VAT, they still have to report them using Form 347.
  
• Enter the correct information: Ensure that the information on any invoices is entered accurately, or they will be considered invalid.
  
• Charge the correct VAT amounts: Ensure that the correct VAT amounts are applied on all transactions.
  
• Stay updated on any regulatory changes: The AEAT might introduce changes at any time that could completely alter the way taxes are self-assessed, such as the measures that were implemented on July 1, 2021, regarding VAT for ecommerce. Not knowing about the latest changes does not excuse VAT collection agents from complying with them. Using a tool such as Stripe Tax can greatly assist in staying updated with the latest tax changes, as it is regularly updated to reflect legislative changes and monitors businesses’ tax obligations. It also notifies business owners if they exceed the tax filing threshold in any of the over 50 countries where it is available. (Check the list of excluded territories.)
  
• Submit a supplementary return as needed: As soon as an error in a previously filed VAT return is identified, businesses must submit a supplementary return.
  
• Use invoicing software: Invest in software that complies with the VERIFACTU system and the anti-fraud law, which requires companies and self-employed individuals in Spain to issue electronic invoices.
  

Avoiding VAT penalties is fairly straightforward, but it’s important to understand the actions the AEAT takes against professionals who—intentionally or not—make errors in their VAT declarations.