New general VAT increase in Spain

27 July 2012

On July 13, 2012, Royal Decree-Law 20/2012 on measures to promote budget stabilization and competition was published. The reforms approved therein include the general increase on VAT tax rates which is especially relevant in view of the direct repercussion on Spanish consumption.

Effective as of September 1, 2012, the general and reduced VAT rates will be raised, and certain goods which previously were taxed at the reduced rate have been reclassified under the general rate. In summary, Royal Decree-Law 12/2012 approves the following modifications:

• The general VAT rate of 18% is increased to 21%.
• The reduced VAT rate of 8% is increased to 10%.
• The super-reduced rate holds steady at 4%.
• Specific transactions relating to the delivery of goods and rendering of services under the reduced rate will now be taxed at the general rate, that is, they will no longer be taxed at 8%, but rather 21%. This includes mixed services such as dining, entertainment, dance clubs, interpretation services, artistic performances and movie directing in addition to theater, circus, movie and theme park tickets.

Rent, utilities such as electricity, water, and gas and, in general, continuing-performance contracts, must apply the new tax rates on bills and invoices due after September 1 (when the new VAT rate will apply), even when the invoices are for services rendered during the months of July and August.

It is worth mentioning that only two years ago, on July 1, 2010, the first overall increase on VAT rates increased the general rate from 16 to 18% and the reduced rate from 7 to 8%. Thus, in two years there has been a total increase of 5% on the general rate and 3% on the reduced rate. Currently, Spain – which until now was one of the countries with the lowest VAT rate in the European Union – has moved into twelfth place amongst countries with the highest VAT rate, placing above countries such as the United Kingdom (20%), Germany (19%) or Holland (19%).

Lastly, as regards the real estate market, the super-reduced rate of 4% for home purchases will not be extended. After January 1, 2012, new home purchases will be taxed at the new reduced rate of 10%.

For further information, please contact María Blanco: