Rose and Clavel Blog

Following new changes to the localisation rules with regards to VAT, there are yet more compliance obligations for businesses arising from this change in legislation.

Traditionally, only companies that were acquiring or selling goods within the EU had to register with the EU traders list so that they were able to exchange these goods without charging VAT at source. In these transactions, the VAT was deemed to arise at the point of receipt, so it was the client who accounted for such VAT in their local return via the VAT reversal mechanism. This has not changed.

Before the new changes very few services followed a similar treatment of accounting for VAT at the point of receipt. For the majority services, VAT was charged at source. Now and as a consequence of these new changes in legislation, the VAT on the supply of all services between companies in the EU will also be deemed to have arisen at the point of receipt.

Consequently, all companies delivering or receiving services within the EU should now apply for registration in the EU traders list. Once on this register, the company will have to file an additional return, namely Modelo 349, declaring details of the clients/suppliers and the amounts exchanged in the period.

More importantly, it is obligatory for all companies now, before issuing an invoice without Spanish VAT, to confirm that their client (in another UE country) is properly registered in the EU traders list. Here is how you go about checking whether your customers are registered on that list:

1- Go to http://ec.europa.eu/taxation_customs/vies/
2- Follow the instructions on the screen.

Consequently, any company rendering services without Spanish VAT to another EU company that is not on this register can be subject to a VAT adjustment by the tax office and potentially a fine.

Whilst there is nothing to panic about; this is yet another hurdle the tax authorities have set for us as tax payers in business. We share your frustration with regards to the additional compliance requirements, although of course Rose & Clavel can help you meet these new obligations accordingly, to safeguard your interests and avoid future problems with the tax office.

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One of the key challenges in every entrepreneur’s life is managing cash flow effectively.

If you have a basic understanding of your balance sheet you will know that in addition to your bank balance you will have both rights (debtors) and obligations (creditors) therefore acknowledging these elements will ensure you don’t just spend all the funds in your bank account with total disregard of future obligations.

During the course of your transactions you are effectively acting as a tax collector for the tax authorities in two ways. Firstly you collect VAT by adding it to your sales and secondly you collect income or corporation tax by withholding tax on some of your expenses such as rent or salaries. Consequently, at the end of each period you may have collected considerable funds on the government’s behalf which will need to be paid over in a timely manner. You can read more about the tax collection system in Spain on the useful information section of our website.

The most effective way to ensure you don’t accidentally spend resources that have been collected in this way is to have a separate bank account where you regularly set funds aside to allow you to meet your payments when due.

You may go about deciding how much to set aside in a number of ways:

“The balance sheet method”: Each month take a look at this financial statement and calculate how much you should set aside. You should take into account all current tax creditor accounts minus your savings account balance to calculate how much your piggy bank needs to be stocked up by.

If you don’t have access you an up to date and reliable balance sheet you may prefer to use the “Rule of thumb method”: Each month set aside between 15 and 20% of sales; adjust your percentage each quarter to compensate for slight under or over provisions.

People often complain that they don’t always get enough notice from their accountant with regards to the quarterly tax payments; don’t make excuses. As a business manager you should not just rely on your external accountant to warn you about payments coming up, you should be aware of the tax collection implications of your transactions and take control of the situation by setting aside whatever is needed as you go along.

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