Brexit: Practical Matters Regarding VAT in Spain

Published on 26 February 2021

After several extensions, a difficult political negotiation and the end of the transitory period, the exit of the United Kingdom from the European Union is fully effective. This means that from 1 January it will receive the same treatment as any other country that does not belong to the EU. The economic and legal consequences of said exit are numerous and varied, but in this brief article we wish to emphasise the changes which will take place in terms of VAT and which companies will note immediately.

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First, note that the flow of merchandise with the United Kingdom will be considered as import/export of goods, and not as intracommunity transactions, as was the regulation until 31 December 2020. This implies that upon entry of merchandise in Spain, import VAT must be paid, unless the payment of VAT is deferred, where VAT returns are submitted monthly. In turn, the exit of merchandise to the United Kingdom will be exportation, which generally speaking is exempt from VAT.

In relation to the rendering of services, the localisation rules also change substantially. From now on, the rule is in place of the effective use of the service rendered, that is, if this service is connected to use in Spanish territory. A fairly common example is the services of a consulting firm. Now entities which render services must evaluate for what purpose clients have acquired their services, and whether their use is located in Spain. Based on our experience, the practical application of this regulation is quite complex.

Furthermore, it is important to note that companies that have acquired goods and services in the United Kingdom during 2020 may only recover the VAT paid in said country until 31 March 2021. In turn, those who will acquire merchandise or services after 1 January 2021 must address their applications directly to the tax authorities in the United Kingdom, as the possibility of initiating refunds using the Virtual Headquarters of the Spanish Tax Agency was eliminated.

Finally, for Northern Ireland there is a special protocol, by virtue of which this territory continues to form part of the EU in terms relative to the delivery, intracommunity acquisition and import of goods.