Perspectives on Spanish VAT

Spanish Value Added Tax, as well as many other tax regulations in Spain, will face several changes in 2014. We still don’t know where it is heading –we will know by March- but many authorized opinions have made their point about the way it should take.

 A flat tax system -which has been proposed by some groups- would be unfair, taking into consideration the proportional and indirect nature of the tax. Also, in a flat tax system, it would be difficult to use the VAT as a tool to achieve social goals and redistribute wealth, as the Law stands, even considering exemptions.

The current three-rate tax can be a bit complex, but also fairer. It is specially suitable in Spain: as a major holidays destination, drinks and food, as well as hotels, shouldn’t be taxed with a sky-high general rate. Otherwise, it would be great loss of competivity for a sector which represents over a 10% of the Spanish GDP. Note that Italy, France, Malta and Turkey act the same way.

   Another hot topic as far as VAT is concerned is the newly introduced cash based accounting, optional only for small companies and self-employed workers. The Government has extended the deadline to subscribe it to 31 March, a hint that shows that it might not be as convenient as it seems at first glance.

 It has some drawbacks, but there is one that stands out: the fact that the company doesn’t have to pay output VAT until the invoice is actually paid, implies that the client of the company can’t deduct their input VAT until the invoice is paid.

  Clients which are big companies are not very happy with this situation; providers which are small companies know it, and they won’t risk their commercial relationships, so things stay pretty much the same.

 This measure was taken to lighten the tax burden on small companies and self-employed workers, and it is not working out.

I wonder if it wouldn't have been easier just to low taxes.