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Within the framework of Intra-Community Transactions, there is a Tax exemption that can avoid the Obligation to self-assess VAT in Spain. This is Article 14.2 of Law 37/1992, on Value Added Tax (VAT), which allows certain entities to avoid paying Tax and not declaring VAT on their Intra-Community acquisitions of goods, provided they do not exceed a certain economic threshold. This exemption, however, is neither automatic nor unlimited, and it is important to understand how it works to avoid errors that could lead to financial penalties.
What does article 14.2 of the VAT Law say?
Article 14.2 of Law 37/1992, of December 28, on Value Added Tax (LIVA), establishes that Intra-Community acquisitions of goods made by the following shall not be subject to Spanish VAT:
- Legal Entities that do not act as Entrepreneurs or Professionals.
- Taxpayers covered by the special Regime for agriculture, livestock and fishing.
- Individuals who do not have the status of Entrepreneur or Professional.
However, this exemption only applies if the total amount of Intra-Community acquisitions of goods made during the previous calendar year did not exceed 10,000 euros.
This limit is calculated by adding up all Intra-Community acquisitions of goods made by the taxable person during that Tax year. It is important to note that splitting transactions to avoid exceeding the €10,000 threshold is not permitted.
As long as the threshold of 10,000 euros is not exceeded and provided there is no express waiver of this specialty, the Intra-Community supplier will charge the VAT of his own Member State on the invoice he issues.
So, is it possible to waive the Exemption?
Yes. Article 14.4 of the VAT Law allows exempt Taxpayers to voluntarily waive the exemption for a minimum of two years, in which case all Intra-Community acquisitions will be taxed from the first transaction, regardless of the limit.
Why would I want to give up this Exemption?
This waiver of the Exemption under Article 14.2 is advantageous for the taxpayer as long as the VAT payable in Spain is lower than the VAT payable in the Country of origin. In other words, it involves comparing the VAT rate in the Country of origin of the goods with the Spanish VAT rate to see which is higher and selecting the one that best suits the needs of paying the lowest possible VAT; provided that the annual threshold of €10,000 is not exceeded, because in that case, Spanish VAT would apply.
What happens if the Limit is Exceeded?
This is where the rule can cause some confusion. Exceeding the €10,000 limit does not mean that only the excess is Taxed; all Intra-Community acquisitions made from that point onward in the same calendar year are subject to Spanish VAT.
This means that, from the transaction that causes the limit to be exceeded, the buyer must self-assess VAT in Spain for the total amount of each subsequent purchase, not just for the part that exceeds 10,000 euros.
How is VAT declared?
The way to declare will depend on the type of Entity:
- Model 303: Business Owners or Professionals who can deduct VAT, using the “usual” model.
- Model 309 Non-Business Entities (NGOs, Associations, Foundations) that are not entitled to a deduction. One-off declaration.
- Model 349: Informative declaration of Intra-Community operations, this is mandatory in both cases, since it is informative and does not imply income.
Practical example
An NGO makes the following Intra-Community purchases during the year, having acquired nothing in the previous year:
- January: €4,000 in educational materials (not subject to VAT).
- March: €3,000 in technical equipment (not subject to VAT).
- June: €5,000 in furniture (with this operation the limit of €10,000 is exceeded).
From June onwards, all Intra-Community acquisitions are subject to Spanish VAT. The June purchase of €5,000 is subject to Spanish VAT in its entirety, not just the €2,000 that exceeds the limit.
Goods excluded from the Exemption
Regardless of the amount, they will always be subject to Spanish VAT:
- New means of transport.
- Products subject to Special Taxes (alcohol, tobacco, hydrocarbons, etc.).
Our recommendation
Article 14.2 of the VAT Law offers a Tax simplification measure for Non-Business Entities making purchases within the European Union. However, the €10,000 limit must be carefully monitored, as exceeding this amount triggers the obligation to pay Tax on all subsequent acquisitions in the same Tax year.
If your Entity carries out Intra-Community transactions and you are close to that threshold, it is advisable to review your Tax planning and assess the impact that the obligation to self-assess VAT in Spain may have.
