Added Value Tax (IVA)

The Added Value Tax

• IVA stands for El Impuesto sobre el Valor Añadido
• IVA is the most relevant tax related to sales transactions
• The operation mechanism of IVA, and how entrepreneurs and professionals manage it is covered

About IVA

• It is an indirect tax that burdens consumption
• It affects the exchange of goods and services performed by entrepreneurs and professionals, as well as imports and intra-community acquisitions of goods
• Consumers pay it for the acquisition of goods and services
• Entrepreneurs and professionals that deliver the goods or services pay it to Hacienda
• Entrepreneurs and professionals deliver goods and services, the consumer or taxpayer pays the price plus IVA, then it it entered in Hacienda

IVA Application Territory

• IVA is applied in the Spanish peninsular territory and in the Balearic Islands
• It does not apply to the community of the Canary Islands, where the general indirect Canary tax applies (IGIC)
• It isn’t neither applied in the communities of Ceuta and Melilla, where the tax on production, services and imports of Ceuta and Melilla applies (IPSI)

Taxable Event

• It constitutes all operations that originate the obligation to pay the tax
• These operations are grouped into three types
• Exchange of goods and the provision of services by entrepreneurs and professionals
• Intra-community acquisitions such as purchases made by entrepreneurs and professionals in States of the European Union
• Imports of goods made by entrepreneurs, professionals, and individuals

Taxpayer

• The passive subjects of the VAT are the entrepreneurs or professionals that carry out the deliveries of goods and provision of services subject to the tax
• In In the IVA, the passive subject is the person that sells a product or provides a service, while the taxpayer is the consumer
• For business people and professionals who perform VAT transactions it is an indirect tax
• IVA fees in their invoices that, later, will enter Hacienda after deducting the fees supported in their acquisitions
• The passive subject must comply with the material and formal obligations of the tax which include: issuing invoices, carrying out periodic declarations with Hacienda, and keeping record books

IVA Types

• IVA Soportado refers to the VAT quotas that the employer pays to their suppliers for the purchase of the products and services necessary for their activity
• The entrepreneur asks Hacienda for reimbursement.
• IVA Repercutido Refers to the VAT that the employer charges to their customers for sales and services
• The employer collects it, later it has to enter it in Hacienda.

Classification of Business Transactions

• The passive subjects of the IVA are the entrepreneurs or professionals that carry out the deliveries of goods and provision of services subject to the tax
• The following are based on whether or not the IVA should be applied to commercial operations
• Transactions are classified as follows: subject operations, non-subject operations, and exempt operations

Operations

• Subject Operations are those that are burdened with IVA such as exchange of goods and services by entrepreneurs and professionals, imports and intra-community acquisitions of goods
• Non-subject operations stay outside the burden and the IVA is not applied to them
• Exempt operations are those to which the IVA is not applied despite being subject to it

Non-Subject IVA Operations

• These operations do not meet the requirements to apply the tax
• Examples:
• Transmission of a set of tangible or intangible elements of the business or professional patrimony if the purchaser proves the intention to keep them used for a professional business activity
• Rendering of services under a dependency regime derived from labor or administrative relationships such as payment of employees' salaries
• Free deliveries of samples of merchandise without estimable commercial value for promotional purposes like samples of perfumes, creams, cookies etc
• Rendering of demonstration services free of charge to promote business or professional activities such as a car ride for the trial of sale or a meal to evaluate an oven
• Deliveries of printed matter or items of advertising nature without commercial value like keychains, diaries and calendars etc
• Services rendered by the member to the associated labor cooperatives e.g. Work of the partners in the cooperatives
• Operations carried out by public entities such as municipalities, and provincial councils without compensation or with a tax nature compensation, unless they act through public, private or mixed companies.

• Ex: garbage collection, street cleaning or water service, because a fee is charged

• Deliveries of money as consideration or payment such as payment of deuda

IVA Exempt Operations

• The exemption is a tax benefit that the tax is not applied too even if they are subject to it
• The exemption assumes a previous subjection to the tax therefore should not be confused with no taxation
• It means that there are entrepreneurs and professionals who cannot charge the IVA on their invoices, though it is supported in their purchases
• the exemption can be limited and full

Exemptions classes

• Limited exemption arises in the domestic operations carried out by entrepreneurs or professionals that are not burdened with the IVA
• IVA cannot be deducted
• Examples: Medicine and health, education and professional recycling, public postal services, lottery and state betting, and in some financial operations
• Full Exemption means that there exist entrepreneurs and professionals that don’t charge the IVA on their invoices but can deduct It
• Arisal rises in foreign trade and in sent goods to Ceuta, Melilla y Canarias
• Examples: good exports outside UE, intracommunity deliveries of goods, travel via maritimes or aerial outside the peninsula, and in goods send to Ceuta, Melilla and Canarias

The General Indirect Canary Tax (IGIC)

• It’s a tribute that burdens the deliveries of goods and rendering of services carried out by business people and professionals as well as foreign and good imports realized on Canary islands.
• The Regulation and application mechanics of the IGIC have a great similarity with the added value tax (IVA)

IGIC rates

• 0% Rate: Sanitary products, water and food, periodicals, books, social protection dwelling, and air transport
• 3% Reduced rate: terrestra transport,vehicle repairs.Chemical industrial..Paper industry
• 5% Reduced Rate: Applicable to the delivery and imports of energetic beverages and fizzy refreeshes with sugar or with sweeteners.
• 7% General rate: applicable to product that are not included in the other categories
• 9.5% Increased rate: Boats/ships and naval artefacts shopping.
• 13.5% Special Rate: Luxury articles such as jewellery, beauty products, and fur clothing, and to the alcoholic beverages
• 20% and 35% Special rate:Black the elaboration of black tobacco (20%) and blond(35 %)

Other

• Some activities are exempt the IGI such as medical assistance, education
• The percentage of IGIC that is applied on activity IGIC soportado is paid by Canarian companies.

IGIC and IVA on trade from Peninsula and Balearic to the Canaries.

• For the goods sends the company does not include IVa due to it not being exported.
• The Buyer must should pay up the IGIC.
• IVA is applied to the rendering of services in the peninsula.
• Goods from the Peninsula stay exempt IGIC

Taxable Base

• The taxable base is the total amount of the consideration or provision of services of the operations subject to VAT.
• The tax rate is applied to the tax base and the VAT quota is obtained
• Tax base x Tax rates = VAT amount
• The concepts to be included and not included in it must be specified

Concepts included and not included

• Concepts that are included are:
• Expenses, shipping fees and transports and assurances
• Subsidies linked to burdened operations
• Packaging and wrappings charged, despite these could be refunded
• Base in the importations
• Taxes and other burdens in some exceptions of the of the IVA
• Concepts that are not included ate the:
  • Previous charge amounts paid in somebody´s name
  • Discounts
  • In order those amounts don’t Include themselves on the taxable base next requirements most be completed:
  • Existence of a verbal or written mandate
  • Invoices of expenses most be issued in the shopper´s name
  • Tax payment most be justified

VAT Tax Types

• The tax rate is the percentage that, applied to the taxable base, gives as result of the VAT quota of each operation
• There are three types of tax rates
• General Type applies the deliveries of assets and rendering some activities as long as those are not Included in the reduces categories
• Reduced Rate applies the delivery, intra community and import activities for several causes such as live animals, spectacles or museums
• Super Reduced Type applies the deliveries, intra community and import activities for several causes such as live animals, spectacles or museums like bread and flours, milk, or frutis and veggies

IVA in international marketing

• Operations most be separated on members from the UE such as intra community to others, named as the exportations and importations
• Operations Most between the EU ones are named and divide so; intra community

Community Operations

• The operations between member countries of the UE such as a good from any place to any other from Europe
• Intracommunity Acquisitions: good from any place from Europe to any other
• The intra-Community operations have different according to the acquired by companies or individuals or particular
• The deliveries to individuals are taxed in the buyer´s country while the one´s whom are businessmen´s are taxed at the destiny
• the invoice is issued without IVA

Importations and exportations

• The terms like importation and exportation and are only used if the operation is performed out side the EU zone to other countries that
• The IVA in importations must be liquefy on the first aduana entry of the UE
• The exportations one´s are exempt
• exporter may deduct the IVA supported in the acquisition or fabrication of those

Tax return

• Tax return is the process that allows taxpayers to define What must be pay in determined time
• Must be liquidate from the passive subject
• The process of the IVA must be liquidated of to components:
  • IVA accrued: to customers due to the activity
  • IVA deductible: to acquire activities that are deductible from companies
• The difference is the amount that is paid to the Treasury that can: enter to refund or compensate in later periods
• The amount that is negative the payment must be done to the Public treasury.
• The business people who is taxpayer must deduct of is clients fees

Deductions

• The matter is What quotas that supports can be deducted from the declarations and What others are considered
• The only ones that are included are the:
  • The acquisitions those are directly related to Business activity
  • The good or the service relation must be clearly related to the activity
  • It cant be deducted if its bought for regular and business reasons
• Things that can be:
  • Gold nor jewels, food tobacco nor events

Deduction for Investment Asset Acquisition

• Those are assets of equipment and are used to generate a working medium or explotation
• Last longer than an year and worth than 3005.06 €.
• Partial deductible must be used for Business purposes.

Cases

• Its about vehicles, tourism and their trailers, mopeds and motorcycles, its about on 50% of affectation on Business activities
• If are Investment Assets different with the other ones.

Amounts and Refund

• The period for each declaration is named as “declaration period” the ones whom are monthly if the Businesses is really bigger or quarterly if its not the caso
• If said declaration is positive it must enter it on Treasury, if declaration is negative there are 2 cases:
  • Compensation of the amounts with future declarations If remains negative it can be asked to refund on year end
  • Mensual refund if and only is said requirements are acomplished
• Deduction limit it’s done on the statement of fees or in others next times if don’t past for years from the deduction day

IVA Accrued

• The moment what births to contribute as its considerred to be performed
• Payment ad bill moments can be different or even it occurs that even if the company never charged the IVA the company charged it.

The class of operations

• Delivery off assets must be done to the buyer disposition
• Benefits must be when offered Importation of assets on the aduana.
• Acquisiton inta community when must be delivered the Spanish territory
• Advance payments on the whole moment or partial moment for the charged amounts

Explanation of Added Value Tax (IVA) in Spain, covering its relevance in sales transactions and its operation for entrepreneurs and professionals. IVA is an indirect tax on consumption, affecting goods, services, imports, and intra-community acquisitions.