The Author of the Article
VAT due when submitting an import declaration...
Companies importing goods in Spain should in principle pay VAT directly when submitting a Customs import declaration. It implies a pre-financing of taxes since VAT is paid at the customs but can only be deducted at a later stage in the VAT return.
Let's take an example
Your company import goods in Spain in February. The refund can only be claimed in the annual declaration to be filed in January of the following year. By the time the tax authorities have processed the claim, the company will generally have prefinanced over 14 months of VAT!
...unless an alternative form of payment is applicable
That is the reason why Spain has established, like many European countries, a reverse charge mechanism in the VAT return enabling to avoid this VAT pre-financing (the VAT due is paid and deducted in the same VAT return).
This regime is called “postponed accounting system for import VAT” (art. 74 VAT Act).
What are the conditions to apply the postponed accounting system in Spain.
To apply this system, a series of requirements must be met, and the appropriate procedures must be carried out at the right time:
- You should file VAT return on a monthly basis. The authorization to defer the payment of VAT in the VAT return is not possible for company filing quarterly VAT returns;
- The application must be made within a specific period limited to 1 month (in November). It is not permitted to submit the application during another period.
No bank guarantees are required by tax authorities. If authorized, the postponed accounting system will take effect on January 1 of the following year.
Pay attention to
As so often in Spain, the devil is in the details. The incorrect application of this system entails multiple risks such as surcharges, penalties, or late payment interests.
There are also two challenges related to the scheme to consider:
- There are strict rules and deadlines for switching from the quarterly to the monthly scheme (REDEME), and these processes must be scrupulously observed or your application will be rejected.
- Filing a declaration on a monthly basis ipso facto entails the obligation to record all transactions (purchases and sales) in the SII system (real-time).
Herein lies the trap of the system. By trying to avoid pre-financing VAT at the time of import, the company is forced to declare all its transactions in real-time (within 4 working days) to the tax authorities (with administrative fines of up to 6,000 EUR per quarter in case of failure).
The VAT expert's eye
Managing the cash flow of your company is a key issue. Despite the principle of VAT neutrality, cash-flow inconvenience derived from the VAT system is a major concern and is perceived as having a significant financial impact. However, Spain offers procedures whereby said cash flow inconvenience can be mitigated or avoided.
Companies importing goods from a Third Country into Spain must pay attention to the following issues:
- Check whether or not the importation can be VAT exempt (bonded warehouse, VAT warehouse, tax warehouse, importation of goods followed by a subsequent intra-EU supply etc.);
- If no VAT exemption is applicable, proceed with the Spanish VAT registration;
- Check the conditions to apply the postponed accounting or deferred payment of import VAT in Spain;
- Determine the consequences (monthly VAT return and real-time SII) in terms of administrative overload associated with this scheme.