If your Spanish business is rendering services to other business or final customers from the UK, or is receiving services from the UK, Brexit will affect to the VAT taxation, then after Brexit the UK will be considered as non EU Member State for VAT purposes. Certainly it can happen that the scenarios we will focus on in this article might change or be somehow re-scheduled in the long and hard negotiations before the definitive date of the Brexit occur.
In general terms Spanish IVA or Value-added tax (VAT) applies to the following transactions:
- The supply of goods or services made in Spanish territory – excluding Canary Islands, Ceuta and Melilla – by a taxable person
- The intra-Community acquisition of goods from another EU Member State by a taxable person
- The importation of goods from outside the EU, regardless of the status of the importer
- Reverse charge on goods and services received by a taxable person in Spain
Regarding the services, from the date of the effective Brexit, EU law will cease to apply in the UK, unless other else agreed. The issue that arises is how VAT will be treated on services with the remaining EU Member States, and with Spain in particular case. Lest us see the main changes:
Services rendered by Spanish business. Currently, VAT is generally not charged on services destined to a foreign established business (from other EU Member States or third countries). In general said services are deemed to rendered in the place where the recipient has his domicile. In this case after Brexit there will be no changes.
Services received from UK providers. In the same way, if your Spanish SL, for example, is receiving services rendered by a UK provider after Brexit there will be continue with no UK VAT being obliged to self-charge and account for VAT in Spain for those services.
However for some kind of services rendered to Non-EU business those rules are not applicable when the effective use of the services for its activity by the foreign business is in Spain. That is due to the so called “use and enjoyment rules” which applies to intermediation or commission services on behalf a third business, legal advice, translation, insurance, telecommunications services, broadcasting services, electronically supplied services, hired goods, hired means of transport and insurance services. In these cases a Spanish taxable person is obliged to charge Spanish VAT even if the recipient is foreigner non established entity. After Brexit this would be applicable to those services rendered by UK business, too.
Services rendered to UK customer (individuals). If your Spanish business is rendering services to customer or a non-business customer established outside Spain the general rule is that Spanish VAT is applicable as the place of establishment of your Spanish company. However here it is also applicable the exception for the aforementioned services due to the “use and enjoyment rules”. The consequence is that after Brexit and being considered the UK not part of the EU Spanish VAT will not be applicable anymore and your Spanish business will have to record for VAT in the UK and charge UK VAT by rendering those services to UK customers.
Finally, regarding the recovery of UK VAT by Spanish or other EU Member State business not established in the UK after Brexit the refund of UK Input VAT accrued will not be anymore possible under the terms of the EU general rules of Directive 2008/9/EC and will be only possible to be requested on the condition of reciprocity, that means that will depend on agreements signed between Spain and the UK as for any other non-EU claimants under the terms of the EU 13th Directive.
In next articles we will considered how Brexit will affect the particular VAT paid status of pleasure crafts.
Carlos Espinosa – Solicitor & Tax Adviser
+34 627 41 32 01