Changes in Spanish reverse charge rules

Spanish draft State’s Budget Law for 2023 includes changes to the VAT Law that impact the reverse charge scope.

27 October, 2022


Changes proposed on the reverse charge rules

Spain is planning to amend its VAT law in the next State’s Budget Law for 2023. These changes will impact reverse charge and bad debt relief rules, as well as other minor areas.

Concerning the reverse charge mechanism, the draft proposal introduces i) an extension of the domestic reverse charge mechanism to the supplies of plastic waste and textile materials and ii) the exclusion of the reverse charge mechanism on the supplies made by non-established companies related to immovable property.

Non-established businesses providing rental services of immovable property will not apply reverse charge. A VAT registration is needed.

Reverse charge on supplies of plastic waste and textile materials

The draft budget states that the Reverse charge mechanism will also apply to  supplies of plastic waste and textile materials. This change broadens the scope of reverse charge on specific goods and services, which applies irrespective of the supplier being established or not. Check here the current reverse charge rules for specific types of goods.

Reverse charge on supplies made by non-established companies

The budget law proposes to exclude the application of reverse charge mechanism on  rental of immovable property made by non-established suppliers.

Also, the supplies of intermediary services related to the rental of immovable property by a non-established supplier are excluded from the reverse charge mechanism.

Therefore, upon the entry into force of these changes, foreign companies may start charging VAT on the rental of immovable property in Spain, as well as on the related supplies of intermediary services.

These changes will require a VAT registration of all businesses only carrying out rental services of immovable property.

The purpose of this measure is to ease the VAT recovery of input VAT incurred in the country for foreign taxpayers. At the moment, the companies that only perform domestic transactions that are subject to the reverse charge mechanism, do not need to be VAT registered and submit VAT returns in Spain, therefore all input VAT incurred in the country must be recovered via 8th or 13th Directive mechanisms.  Upon the approval of the Law, foreign companies providing rental of immovable property or related services, must register for VAT to account for the correspondent VAT charged to their customers. In consequence, input VAT would be recoverable via VAT return.

Upon the approval of the Law, foreign companies providing rental of immovable property or related services, must register for VAT in Spain. Check here for more details about the reverse charge mechanism.


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