Special tax regime of the Cash Approach in the Value Added Tax
The special VAT regime of the cash approach was a measure pursued by self-employed workers and SME’s until it was approved under the Entrepreneurs Law, which entered into force on January 1st, 2014. This lawsuit sought that VAT of the invoices did not have to be entered to the Tax Agency before collection.
Below we explain everything you need to know about the special tax regime of the VAT cash approach, from its definition to how to benefit from it.
- 1 Content of the special tax regime
- 2 Requirements to qualify for the special tax regime
- 3 What operations cannot be included in this regime?
- 4 Addressees of operations affected by the regime
- 5 Frequently asked questions
Content of the special tax regime
This regime consists of postponing the payment of the VAT of the invoices to the Tax Agency. That is, it allows entering the VAT at the moment in which the invoice has been collected and not at the time of its issuance, with the limitation of the December 31st of the year immediately following the execution of the transaction, in the case that the payment has not yet taken place.
It is a reform that supposes a relief for many small professionals and companies with liquidity problems. Even so, we must bear in mind that it not only affects the income, so that those expenses that have not yet been paid to the providers will not be able to be deducted until said payment becomes effective. It must also take into account that the application of the regime involves the fulfilment of some informative obligations.
Requirements to qualify for the special tax regime
To invoke for this special VAT regime, the annual turnover of self-employed or SME’s cannot exceed 2 million Euros. In addition, annual cash payments to the same customer cannot exceed 100,000 Euros.
What operations cannot be included in this regime?
In addition to the above requirements, the Tax Agency indicates that the following operations cannot be included in the special regime of cash approach:
- Intra-community operations of goods
- Transactions belonging to a special regime of VAT, such as the special agricultural regime, equivalence surcharge, module system, etc.
- Imports and operations assimilated to imports
- Self-consumption of goods and services. (Autoconsumos)
- Reverse charge system assumptions. (Inversión del sujeto pasivo)
Addressees of operations affected by the regime
Taxpayers who are not subject to the special tax regime of the cash approach, but who are recipients of operations included in it, are also affected about the modification of the moment of the applications of the deductions on the VAT charged by these invoices. This right is born at the time of payment, or on December 31st of the immediately following year.
Therefore, whoever applies this special regime must indicate it in their invoices issued so that the receiver of them can deduce it at the appropriate time.
Frequently asked questions
Then we will solve some of the questions that may arise regarding the special tax regime:
How is the cash approach different from the accrual criterion?
In the general regime (accrual criterion) of the VAT, the accrual of the tax occurs at the moment of the delivery of the good or the provision of the service, regardless of the moment in which the payment takes place (except for the cases such as advances), while in the special tax regime of the cash approach, the accrual occurs at the time of collection, and the right of deduction at the time of payment, always taking into account the limitation of the December 31st of the immediately following year.
How is the volume of operations calculated in order to determine the possibility of applying the special tax regime?
For this calculation, the total amount of deliveries of goods and services provided by the taxpayer during the previous year will be taken, excluding VAT and, if applicable the equivalence surcharge. They will also take exempt transactions into account.
When is the tax assessed?
Although the accrual of the tax is understood to have occurred at the time of the payment of the invoice (with the limit of December 31st of the immediately following year), its assessment must be made at the time of issuing and delivering the invoice.
If you need advice to postpone the payment of VAT on your invoices through the special tax regime of cash approach, contat GM Tax Consultancy without any commitment. We will study your case and your operations in a professional, confidential and close manner.