Have you ever received or been asked for a Spanish bill with Reverse charge (Inversión de Sujeto Pasivo, ISP) and not known what to do with it?
Have you received or have you ever been asked for a bill with Reverse charge (ISP) and you have not known what to do with it?
At Welex, your law and economics firm under one roof in Marbella, we would like to make you aware of this exception to the general VAT rule known as Reverse charge.
As a general rule, the taxable person is the natural or legal person in charge of passing on the VAT, working as a professional and/or businessman, to his clients through the issue of invoices. This taxpayer is also obliged to collect the VAT generated for subsequent presentation to the Tax Agency (AEAT).
In other words, as a businessman, we have the obligation to transmit the value added tax to our clients and declare it in the quarterly VAT forms.
Example VAT in Spain Reverse charge
To explain the common cycle of VAT in Spain, we will give the following example:
We have a business that is dedicated to the retail trade of shoes. Our business consists of buying shoes wholesale from company «X» at an affordable price and then trading them to a third party with a 30% profit margin.
Well, in the following example the supplier X is the taxable person as soon as he issues us the invoice with the corresponding VAT while we will be the taxpayer (final consumer who bears the VAT). Later, when we sell the shoes to our customer we will issue another invoice with its VAT to our customer and thus we become the taxable person and our customer the taxpayer.
However, there are several exceptions to the general rule. In this blog we are going to talk precisely about art. 84. One 2nd article of the VAT law (Law 37/1992) commonly known as the Reverse charge.
Reverse charge is a change in the general rule of VAT that makes the recipient of the invoice responsible for declaring the tax to the Treasury.
This implies that if we are under the exception of the article we will not be the ones in charge of charging the VAT but it will be the taxpayer’s obligation.
In this case, the taxpayer will have to reflect in the quarterly taxes the tax on that invoice for the information of the tax office.
What are the assumptions that condition the Reverse charge in Spain?
The Art. 84. One 2º of the VAT law (Law 37/1992) establishes the following assumptions:
a) When they are made by persons or entities not established in the territory of application of the tax.
b) When involves supply of unprocessed gold or semi-manufactured gold products, of a fineness of 325 thousandths or more.
c) When involves supplies of new industrial waste, foundry waste and scrap, residues and other recyclable materials (supplies of waste or scrap of paper, paperboard or glass).
d) In the case of the supply of services relating to emission allowances, certified emission reductions and greenhouse gas emission reduction units.
e) In the case of the following supplies of immovable property following insolvency proceedings, the exempt supplies referred to in Article 20. One paragraphs 20 and 22, where the taxable person has renounced the exemption and supplies made in execution of the security lodged in respect of the immovable property.
f) When the execution of works is involved, with or without the provision of materials, as well as the assignment of personnel to carry them out.
g) In the case of the supply of the following products:
· Silver, platinum and palladium, unwrought, powdered or semi-wrought.
· Mobile phones.
· Video game consoles, portable computers and digital tablets.