Value-added tax (VAT) is one of the most important taxes across Spain and the wider European Union, where it is commonly referred to as EU VAT. While VAT in Spain is applied to most products and services, there are certain transactions that are exempt from this indirect tax. In this article, we’ll discuss what you need to know about these types of transactions, including the Agencia Tributaria (the Spanish Tax Agency) form in which they should be reported.

What’s in this article?

• What are non-VAT transactions?
  
• How do VAT-exempt and non-VAT transactions differ?
  
• List of non-VAT transactions
  
• Taxation of non-VAT transactions
  

What are non-VAT transactions?

Non-VAT transactions are those where the nature of the transaction itself excludes the obligation to pay VAT. While there are VAT-exempt transactions where the tax does not apply, it’s important to note that there are significant differences between these and non-VAT transactions.

How do VAT-exempt and non-VAT transactions differ?

People often confuse VAT-exempt transactions with non-VAT transactions. While both types of transactions are exempt from VAT, each has its own tax implications and characteristics.

In non-VAT transactions, no taxable event occurs. But in VAT-exempt transactions, although there should theoretically be a tax rate associated with them, current legislation includes exceptions where payment processing is not required. However, in order to avoid the obligation to pay VAT, certain conditions must be met.

If a company or self-employed individual conducts a non-VAT transaction, it must be included in Form 347—we will explore these declarations further in the taxation section. For a VAT-exempt transaction, this isn’t required. The Agencia Tributaria provides detailed and concise specifications on which transactions are exempt from VAT. To help you understand some of the cases that appear on its official website, we’ve compiled a list of specific examples to clarify when transactions do not need to be included in Form 347:

• Training services: For instance, someone offering private lessons in subjects that are part of a study plan.
  
• Health services: This includes things such as medical treatment provided by a qualified health care professional who holds the appropriate qualifications. Services not officially considered as medical professions, such as acupuncture and mesotherapy, are not included.
  
• State postal service: In Spain, this exemption only applies to Correos (the postal service owned by the Spanish state); private companies offering courier services are not eligible.
  

Non-VAT transactions and VAT-exempt transactions share one factor: neither the customer nor the company providing the service or selling the product is required to pay or collect the tax and subsequently remit it to the Agencia Tributaria.

To ensure that the taxes you apply to your sales are always correct (regardless of the country you invoice to), solutions such as Stripe Tax allow you to automate the calculation and collection of taxes, not only for your transactions in Spain, but also in the 50+ countries where Tax is available (please check the updated list of excluded territories). In addition, you will also be able to generate reports that will make tax returns much easier, such as for Form 347, in which transactions not subject to VAT must be included.

List of non-VAT transactions

The Agencia Tributaria clearly defines non-VAT transactions. If there are any doubts, the BOE (the Spanish Official State Gazette) specifies all the transactions covered by this regulation. You can consult article 7 of Law 37/1992 for more in-depth information. We have prepared a more concise list with examples of each case:

• Any free product or service for promotional purposes: For example, giving away free samples so that potential customers can try products.
  
• Promotional gifts: For example, USB flash drives, calendars, or any other product bearing a company’s logo that is given away for free for promotional purposes. According to Law 37/1992, these are not subject to VAT as long as the value of the promotional gifts does not exceed €200.
  
• Transactions carried out by any noncommercial public entity: For example, selective waste collection, provided it is carried out by a public body such as a local council. If the service is provided by a company that is not entirely public (such as a landscaping company hired to trim trees on public roads), the transaction would be subject to VAT.
  
• Any service provided by individuals under an administrative or employment relationship: For example, if an individual works for a company, the payroll does not include VAT. It should be clarified that if the individual is employed by the company, the transaction is considered not subject to VAT. However, if the individual is self-employed, they must issue invoices that include the appropriate VAT.
  
• Services or goods for personal use: For example, providing goods to employees of a company, such as uniforms in the company’s brand colors. In other words, VAT is not applicable if the tax cannot be deducted when purchasing goods (such as uniforms for employees) or services.
  
• Transfer of any amount of money as consideration or payment: For example, payments for credit products or cash withdrawals from ATMs.
  
• Transactions carried out by irrigation communities: Irrigation communities (“comunidades de regantes”) are listed on the Spanish government website. All transactions conducted by them for the purpose of water usage will not be subject to VAT.
  
• Any service provided to a worker cooperative by a member worker: Transactions between cooperatives are not subject to VAT.
  
• Administrative permits and licenses: For example, a public authority such as a city council grants a company the right to use goods or services that are not of a private nature. However, not all government permits and licenses are exempt from VAT; some require payment of VAT:
  
  • Those that allocate real estate or facilities at airports
    
  • Those granting rights to use a public port or railway infrastructure
    
  • Those transferring the right to provide services to the public or to carry out an activity in port facilities, provided that such activity is of an industrial or commercial nature.
    
• Transfers of business units independent of companies: This involves the sale of one of the business lines that a company operates. For example, a company in Spain markets three types of products: bed frames, mattresses, and bed linen. It wants to focus on the first two products, so it decides to sell the textile business, where it manufactures and sells sheets and blankets, but it keeps the factories where it manufactures beds and mattresses. In this case, the transfer of this entity would not be subject to VAT if two conditions are met: first, the entity to be transferred must be an autonomous entity where the professional or business activity can be carried out; second, the buyer must confirm its intention to continue any professional or business activity, regardless of whether it is the same as that carried out by the selling company.
  
• Any service that is required by law or collective bargaining agreement to be provided free of charge: For example, persons performing the functions of public prosecutors and attorneys.
  

Taxation of non-VAT transactions

In the first section, where we defined which transactions are not subject to VAT, we mentioned that they do not involve the payment of VAT. However, this does not mean that the tax normally associated with these transactions does not need to be included in an Agencia Tributaria form.

Although this VAT is not paid, it must be included in Form 347, which details all transactions with third parties. This declaration must be filed by any self-employed person or company that has carried out transactions with another natural or legal person that exceed a value of €3,005.06 in a calendar year.

However, there are two VAT-related forms that do not require the inclusion of non-VAT transactions:

• Form 390: An informational declaration that summarizes the VAT settlement transactions conducted throughout the year.
  
• Form 303: A quarterly declaration corresponding to the periodic payment of VAT.
  

Although you don’t have to include these types of transactions, you must file both Form 303 and Form 390 if you have any transactions subject to sales tax.

The tax applies not only to quarterly and annual returns, but also to invoices. Invoices not subject to this tax must clearly state that the transaction is not subject to VAT, in accordance with Article 7 of Law 37/1992, as previously discussed in this article.

We hope that this guide will help you understand what non-VAT transactions are and how you can manage the tax considerations they entail for your company. Remember that VAT regulations are updated periodically and that the conditions that qualify a transaction as nontaxable may change in the future: if you have any doubts about this, we recommend that you consult your tax advisor.