Non-deductible VAT: Essential Guide for Any Freelancer in Spain
Tax Agency (Hacienda)
As you can guess from the title of the article, there is a non-deductible VAT. It means that not all the VAT you pay is considered deductible. To consider the paid VAT deductible, it must meet a series of requirements.
Non-deductible VAT or deductible VAT?
Let see the four requirements that an expense must meet so that the VAT in the acquisition of any good or service can be deductible.
To justify an expense adequately, you should ask for a complete invoice. This invoice must contain the following information: name, address and TIN of the customer and supplier, date, invoice number, concept and breakdown of the tax base and the VAT quota.
Related articles: What a Valid Invoice Must Include?
Your expenses must be related to the activity you carry out, and it’s necessary to obtain income. For example, VAT on clothing purchased by the owner of the activity is not considered deductible.
You have to register the expenses properly in the corresponding accounting books and keep them for at least four financial years following the date of issuance of the invoice.
You can deduct the VAT of your expense invoices in the four years following the date of issuance of the invoice.
Exclusions for non-deductible VAT
Now let’s relate the exclusions of the right to deduct an expense, regulated in art. 96 of the VAT Law, with its details:
1. Jewellery, precious stones and objects made entirely or partially with gold or platinum.
Whether for own consumption or as customer service, the VAT incurred in the acquisition of these goods is not considered deductible.
2. Food, drinks and tobacco.
But what happens if you give a box of chocolates, as an object of little value to a customer, in a promotional packaging with your company logo? It is food, could it be deducted?
In our opinion, it is an object of advertising or loyalty of low value and according to section One.5. a) of the same art. 96 LIVA would not be considered within the exclusions.
3. Recreational shows and services.
We invite a customer to a basketball game, can we deduct the VAT from his ticket?
If it is a public relations expense with customers and suppliers, it is being used to promote the activity and has a correlation with income, you can try to defend it as deductible. But you have to keep in mind that the burden of proof falls on you, and in this case, the proof is not easily defensible.
4. The goods or services intended for customer service or third parties.
You can deduct the VAT of these gifts if you give samples of low value or goods produced in your economic activity. For example, if you make sweets and give a cake.
5. Travel services, hospitality and catering.
The VAT will only be deductible to the extent that they are considered tax-deductible expenses for personal income tax or Corporate Income Tax.
Therefore, the requirements that these expenses must meet to be considered deductible are two:
– They must have the exclusive purpose of promoting the activity and
– Correlate with income.
As you can see, in controversial cases such as gifts to customers, meals with customers, travel expenses, both for the client and the employer, the main obstacles to VAT deductibility are two:
– that it is conveniently justified (tickets or simplified invoices are not invoices)
– and proof of their purpose.
The solution to the first obstacle is easy. You have to insist until you get the valid, complete invoice. Read more about what a valid invoice must include in this article.
The solution of the second obstacle involves using any means of proof that you can use in law. As examples to prove that you were in a particular place on a specific day, you can use parking tickets, fines, visiting sheets signed and sealed by the client, contracts with the client with the address of your local or branch, among others.