Category Archives: Uncategorized

Spanish and UK VAT implications of a no-deal Brexit

So a Brexit without any agreement is being considered a very real possibility. How would this affect VAT on transactions between Spanish and British companies ?

Current members of the European Union apply the provisions of the the EU 6th VAT Directive.  By far the most important regulation included in the Directive regards the VAT on the provision of services between businesses in different EU countries. For instance, if a consultancy business based in Spain provides B2B services to a UK company, then no Spanish VAT needs to be added to their invoice. This is the so-called Reverse Charge principle, where the place of supply of goods is considered to be where the customer is based, and therefore in this case the UK customer would account for the UK VAT on the invoice as both Output and Input VAT, the net result being zero.

After Brexit, the same Spanish consultancy company sends an invoice to its UK customer.  Spanish VAT cannot be applied because the UK is now outside the scope of application of EU VAT.   The customer would not apply the reverse charge because they are no longer governed by EU VAT legislation. So the transaction would simply be exempt from Spanish VAT.  In a similar way, invoices on professional services by a UK consultancy business to a client in Spain will be exempt from UK VAT.

Being exempt rather than zero-rated transactions, any local VAT on costs associated with the provision of services will not be deductible. So in the case of a Spanish consultancy company providing services to clients in other EU countries (80%) as well as clients in the UK (20%), then 20% of the Spanish VAT on associated expenditure (phone, internet, commissions etc.) would not be deductible. So in this respect, it is the Spanish businesses which will suffer from Brexit more than their UK counterparts !

For further information and details on our services, please visit our Spain Accountants website.

Spanish businesses registering on the VIES

A couple of years ago, in an article on this blog , we addressed the problems that Spanish businesses face when trying to register on the EU VAT database (VIES). Sadly, nothing has improved to date.

To recap, a business that registers for VAT in Spain is not automatically registered on the VIES, as is the procedure in other EU countries. The Spanish Tax Office insists on a separate application being made and the taxpayer being subject to an inspection before approval is given. Often a Tax Office inspector will turn up at the registered address of the business without notice, and if there is no-one there (quite possible for a work-from-home sole-trader) then the approval process will be put on ice, delayed for months, or be rejected.

We ask ourselves, what is the reasoning behind this extra layer of bureaucracy from the Spanish authorities ? We can only think that it is some misplaced attempt to prevent VAT fraud, and to check that the business is a bona fide one before allowing it on the EU VAT database.  Although other more enlightened and streamlined administrations such as the UK and France do not have such a procedure- in these countries, as soon as the business has a local VAT number, it is added to the VIES.

The damage done to the competitiveness of Spanish businesses is significant.  If a Spanish business purchases goods or services from a supplier in another EU country, the supplier will often do a check on the VIES database and if their client does not appear then they may insist on charging local VAT. Due to the difficulties and further bureaucracy of claiming foreign VAT back via the Spanish Tax authorities, this VAT may never be recovered and represent an extra cost for the Spanish business. Especially in markets where margins are narrow, this extra expense could make the difference between success and failure.

So once again we say to the Spanish authorities: cut the bureaucracy and add new businesses to the VIES as soon as they register for VAT !

For further information and details on our services, please visit our Spain Accountants website.

 

Spanish income tax changes for the year 2019 ?

For two years now there has been no change to the income tax rates and allowances in Spain. With the new government in Spain led by the Socialist Party of Pedro Sanchez, it is fair to expect that there will be some kind of tax shake-up.  However Sanchez has a minority government after being put into power without elections following the forcing out of the Popular Party´s Mariano Rajoy by a no-confidence vote, so he will need the support of other parties to pass the new  Budget and tax changes for 2019 and onwards.

For us here at Spain Accountants, the priority of the government should be not so much to change tax rates, but to deal with two easy-to-solve issues that are holding Spain back in competitiveness.

Firstly, the astonishingly backwards Spanish Tax Office system for incorporating businesses in the European Union´s Intracommunity VAT registration system (VIES).  I will deal with this in another article to be posted later today.

Secondly, the Social Security contribution for the self-employed (autonomos).  Now over the last couple of years, Spain has introduced limited reforms which allow newly-registered self-employed businesses to pay a reduced flat rate Social Security. However these flat rates only last for 18 months and after that time, the business must pay Social Security at the full rate, around 300 Euros per month, regardless of whether they are making a profit and how much.

Now businesses take time to succeed. Of course some will fail, and the current Social Security legislation is adding to the failure rate. Or encouraging new businesses to stay out of the Tax and Social Security system entirely and operating in the black market.

So real reform is required, to bring Spain up to level in competitiveness with its sister economies around the world, and introduce a Social Security contributions rate for the self-employed that is in direct proportion to the profit actually made !

For further information and details on our services, please visit our Spain Accountants website.

 

Spain Accountants publishes Chinese web pages

Traditionally we have used English as a working language both for our website and for communication with clients.  When we first started out in 2003 the great majority of our clients were from the UK. Now I would say that more than 50% of new clients are non-British but comfortable to communicate in English, many of these from Nordic, North European and Eastern European countries.

However there is still clearly a need for original language content to offer our services to potential Chinese clients, and for this reason we are now releasing our website pages in Chinese.  The professional translation is thanks to our very own Fangwei Chen, our operations manager.

For a link to the web pages, follow Spain Accountants in Chinese.

 

 

Hacienda squeezes even tighter- filing deadline for Modelo 347 changed.

In my previous posts on French and Spanish tax I have used the Star Wars analogy with regards to the Tax Office´s treatment of the small business taxpayer.  Well sad to say, but in Spain the Empire continues to tighten its grip.

The annual informative declaration of transactions with third parties, Modelo 347, is a rather clever tool introduced by the Agencia Tributaria a few years back to ensure tax and VAT compliance among small businesses.  Any supplier or customer with whom you the taxpayer has transactions totalling more than 3,005 Euros in the year must be included in this declaration.  As Hacienda can cross-check between declarations,  the taxpayer runs a risk of and enquiry inspection if they make any omissions.

In principle this is a clever way to ensure that businesses declare all income, and do not overstate expenditure for tax and VAT purposes. Where our objection, and that of Spanish professional accountants´ organisations, including of own- the AECE , is in the tight filing deadlines.

Originally 31st March, this was changed last year to 28th Feb and now it is proposed that from 2018 the deadline will be 31st January ! This gives the small business only one month from the close of the year to prepare the return, at a time when they also have other annual tax obligations with a similar deadline- annual informative returns for VAT and tax retentions.

And as is standard in Spain, Hacienda are ruthless with the poor person that misses the deadline. No reminder letter if the deadline is missed, no forgiveness for the first transgression. As usual, the taxpayer can expect an automatic penalty fine with no excuses accepted.

The cynic might say that these changes in deadlines are designed purely to generate income in penalty fines. And I would find it difficult to argue !

For further information and details on our services, please visit our Spain Accountants website.

 

 

 

The New Autonomo Law

The proposals in Proposición de Ley de Reformas Urgentes del Trabajo Autónomo, which are expected to become law from 1st January 2018 contain some changes which will be of interest to those of you that are thinking about starting up a self-employed business in Spain. Here is a brief summary of the most important points.

From 1st January 2018, Social Security contributions for new autonomos under the Tarifa Plana regime will be as follows:

1-12 months: 50 Euros

13-18 months (50% reduction): 137 Euros

18-24 months (30% reduction): 192 Euros

After 24 months contributions revert to standard, which is currently around 275 Euros per month.

Autonomos who are re-registering after having ceased their business for more than two years are eligible to apply.

For autonomos who work from home, 20% of personal household expenditure, such as telephone, water, gas, and electricity is tax deductible. For expenditure related to vehicles that are partially used for business, 50% of the cost is deductible for the purposes of income tax (depreciation) and VAT.

The self-employed food allowance is 26,67 Euros per day if the expenditure is incurred in Spain or 48,08 Euros if incurred abroad. Only bills of restaurants, hotels or similar establshments (not including supermarkets) can be claimed and only for card/ electronic payments.

Autonomos may change their base of contribution up to four times in one year, and are also are allowed to register and de-register from Social Security up to three times a year.

For further information and details on our services, please visit our Spain Accountants website.

Amplification of our services and reduction of costs to our clients. Part 2: Registration for autonomo Social Security

This is our second post of today on a recent development in our services,

We have recently registered as an online service provider for small business clients (PAE = Punto de Atención al Emprendedor). This means that we are now able to offer certain services online, i.e. without the need to use a local gestoria to physically go into the relevant government office to complete the client´s procedures. This means that we can reduce the cost to our clients which is always going to be welcome !

The government system for this is called CIRCE (Centro de Información y Red de Creación de Empresas) and we will use it for the following:

Autonomo Social Security registration

Using the CIRCE system, we can register our clients for autonomo Social Security online, which using the regular Social Security system is only possible in the client has their own Tax Office digital certificate. Not having to physically go into the Administration Offices to register  clearly saves on time and stress for all involved.

If you would like any help with registering as an autonomo in Spain then we will be happy to assist ! You will find further details on our website www.spainaccountants.com .

Amplification of our services and reduction of costs to our clients. Part 1: Company formation in Spain

Spain Accountants has some good news to share with you ! We have recently registered as an online service provider for small business clients (PAE = Punto de Atención al Emprendedor). This means that we are now able to offer certain services online, i.e. without the need to use a local gestoria to physically go into the relevant government office to complete the client´s procedures. This means that we can reduce the cost to our clients which is always going to be welcome !

The government system for this is called CIRCE (Centro de Información y Red de Creación de Empresas) and we will use it for the following:

Company formation

Under the CIRCE system, formation of a new limited company (Sociedad Limitada) in Spain has been made simpler and less expensive.  Procedures such as physically having to go into the Tax Office to pay Stamp Duty and converting the provisional tax number (CIF) to a final tax number are not necessary under this online system. It is also no longer necessary to physically present the notarised company articles at the Mercantile Registry, as these are sent online via the CIRCE system.

In addition, the newly formed company is automatically assigned an employer´s Social Security number as part of the process.

This cuts down both the timescale and cost to the client.

There are two important “manual” parts to the company formation procedure which remain unchanged:

  1. The client is still required to go into their Spanish bank to open the company bank account.
  2. The client is still required to attend a Notary signing in Spain to sign the constitution of the company.

If you would like any help with forming your new Spanish company then we will be happy to assist ! You will find further details and FAQ´s on our company formation service on our website www.spainaccountants.com .

 

2016 Renta- the time has arrived !

In a couple of hours time, if the Agencia Tributaria keep to their promise, the online system will open for the filing of the 2016 Renta. It´s a brand new system this year- the offline tax return preparation software of previous years, PADRE, has gone and now filing is fully online.

Most of us in the industry expect the Agencia Tributuria to have some teething problems with the new system, but they might surprise us ! Let the fun commence !

Modelo 720- Declaration of Foreign Assets- 2017 update

It is now four years deeply unpopular Modelo 720, the declaration of foreign assets, has been with us. Happy birthday- not !  As of today, there have been no updates on the Agencia Tributaria website since last year, so for now we are assuming that nothing has changed in the rules.

After the initial bewilderment and even fear (looking at the kind of fines that the Agencia Tributaria propose for errors in declaration, produced by Modelo 720 when it was first released), I would say that things have calmed down now.  We have still not come across any Tax Office fines or penalties,  and it appears from correspondence received from them that they are mainly using the data submitted in Modelo 720 to check that income from foreign assets (e.g. rental income from a foreign property) is being properly declared in Spain- subject to the provisions of the relevant international Double Tax Treaties.

However we continue to advise that those filing this declaration take extreme care to fully and correctly disclose all details. I    wouldn´t want to take any risks with the Agencia Tributaria given their capacity for giving and enforcing sanctions and penalties.

As nothing has changed in the rules since last year, I am copying below our general guidelines and have added some more specific technical notes in a further post.

For more information and guidance, please visit our website

Obligation to declare

Spanish residents with foreign assets or income in any of the following categories exceeding 50,000 Euros on 31st December.

  1. Accounts in any kind of financial institution e.g. banks, building societies.
  2. a) Investments/ rights of representation in foreign companies or other entities.                                                                                                                   b) Investments in foreign collective investment institutions (e.g. unit trusts).                                                                                                                         c) Foreign life/ invalidity insurance; income from foreign annuities.
  3. Property and rights to property.

Note that the threshold is for the total value of each of the three categories.

Where assets are jointly held (e.g. with a spouse), it is the total value of the asset which is relevant. A separate return must be submitted for each person.

Presentation deadline

This tax return must be submitted by 31st March following the end of the year in which the taxpayer is obliged to declare.

Frequency of declarations

The Agencia Tributaria guidelines state the following:

After the initial return is presented, a new return must be filed when the total of any category of assets/ income increases by 20,000 Euros or more, either at 31st December or during the last quarter of the year.

Valuation of assets

Property: purchase price;

Investments which are traded on the open market: market value as at 31st December;

Other investments: value on last published balance sheet.

Penalties for non-disclosure

The guidelines mention “minimum” penalties of 30,000 Euros for non-disclosure ! I can’t envisage how such big penalties could be applied, or even if they would be enforceable if challenged under EU law.

Information is, in principle, shared very easily between financial institutions and Tax Offices in both EU and non-EU countries these days; this means that, in theory at least, the figures that you declare can be checked by the Agencia Tributaria.

The Agencia Tributaria FAQ’s imply that even the slightest error, even unintentional (e.g. in a bank account number) will be punished by a minimum fine of 10,000 Euros !

This would appear to be nothing more than scaremongering.  But the fact is, we don’t know.  To date we have not heard from any prospective clients who have received a fine,  so at this point we can only conjecture

For more information and guidance, please visit our website