If you have a company in Spain or are thinking about investing in Spain you surely have wondered what the intra-community VAT number is, what is it for, how do I get it, and how does it work? Do not despair, here we are going to tell you everything you need to know about it.
We all know that taxes can be a pain, particularly in a different country where we’re not familiar with the legal system and getting to know it is usually a really hard task. Thankfully there’s nothing to worry about, here comes TAS to your rescue.
Now, let’s start from the beginning:
What is VAT?
The acronym VAT stands for “Value Added Tax”, this is a type of consumption tax. This tax is applied in every stage of the supply chain, in which value is added to the service or product. This tax affects the final price of the goods and is payed by the final consumer as part of the product price. It is then collected by the selling company and refunded to the state.
The VAT payment is different whether the trading exchange occurs within the EU or between a Member State and a non-Member State.
Transactions between a non-European member and a member of the UE
When importing a good from a non-European Member State, it is subject to VAT at the rate applicable in the member State into which the goods are imported, i.e if you import a good from a non-European country into Spain the rate applicable is that of Spain. The VAT is generally charged at the border, at the same time as customs duty.
For intra-community trade, if you are an EU-VAT registered and you sell to another EU-VAT registered you do not charge VAT to that sale. The VAT due for the acquisition of the product is payable on acquisition of the goods by the final customer in the member State where the goods are purchased.
What is an EU VAT number?
An EU VAT number is an identification number for companies. This number is individual and consists of a combination of alphanumeric characters (up to 13 digits), being the first 2 the letters of the country in which the company was registered, i.e. if your company is registered in Spain the first 2 characters will be ES.
This identification number is for intra-EU transactions. Foreign companies as well as EU companies who want to trade with different countries within the EU must have an intra-community VAT number (EU VAT number).
In Spain, this number allows you to charge other companies in Europe, but also permits VAT exemption from the bill. In order to benefit from such an exemption, your intra community VAT number, as well as that of your client, must both appear on the bill. Do not forget that both your company and that of your client must be based in the European Union in order to qualify.
How do I get an EU VAT number in Spain?
In order to obtain the Intra Community VAT number in Spain, it is important to be able to prove to the tax authorities that your business is indeed being carried out from Spain. In fact, in order to enjoy the benefits of the EU VAT number, that is to say charging Duty Free within Europe, your company must have a physical presence in Spain. The ideal situation would be that a partner or several partners are themselves Spanish residents or citizens. However, it is also possible to justify this physical presence by renting a room in Spain as an acting office with a minimum of just one single employee working there.
Getting your VAT number in Spain can take from 3 to 6 months, and within this time you will be subject to inspection by a representative of the Spanish tax authorities.
Verification of intra-community VAT number
To ensure that your client is a taxable person in another Member State you must verify that the provided intra-community VAT number is valid.
There is a database in the European Union where every EU VAT number is registered. To access this database you only have to go to the European Taxation and Customs Union; there you can verify your client and your own intra-community VAT number.
This verification system is called VIES, which stands for VAT Information Exchange System. It is very important for you to check the validity of the intra-community VAT numbers of clients, old and new; given that some countries deactivate these numbers overnight.
You must also be very attentive given that some countries, such as Germany, have two different VAT, a local one and an intra-community one. It is very important for you to include the intra-community VAT in the invoice, because if there is a mistake with it, you must invoice the VAT.
What to do if the intra-community VAT number is not valid?
If you’re checking on your own intra-community VAT number and the system shows it is not valid, the first thing you need to do is to double-check that you introduced your number correctly, if after doing that the invalid message persist, get in touch with your tax authority as soon as possible.
On the other hand, if you’re checking on the EU VAT number of your client and the system shows it is not valid, the first thing you need to do is also to double-check with your client. After you make sure it was not a typo and the number of characters is correct, if the message of the system is still the same, you should let your client know. They must go to their respective tax authority to update the VIES data and make sure that their company’s information is up to date.
The most common reasons for the system to show a “non valid” response are:
The registration of the VAT number is no completed
The VAT number was not activated for intra-community transactions, i.e. within the EU.
The VAT number does not exist.
If the VAT number of your client is not valid they will not be regarded as a taxpayer, meaning you will not be able to apply VAT exemption and you will have to charge it.
The Spanish and European tax system has its complexities, however, we will be sharing all the information you need to know in an explicit and didactic way for your business in Spain to be successful. Follow us on our social networks and blog, or contact us whenever you need, our experts will respond within 24 hours to advise you.