VAT on Digital Services
Spain is a very good place to start a digital business, as VAT is one of the lowest in the European Union (onwards, “the EU”).
If you are doing business online, you must charge Spanish VAT on sales to or from Spain, depending on the different situations.
What are digital services?
Los servicios digitales son servicios prestados exclusivamente a través de Internet y que requieren poca o ninguna intervención humana.
Digital services are services provided exclusively via the Internet and require little or no human intervention.
- Access to and download of files.
- Software update.
- Hosting services.
- Access to the web application.
- Remote maintenance of software and hardware.
- Distribution of images, texts and information and their storage in databases.
- Distribution of music, films, games (including money wagers and online games).
- Distribution of scientific, artistic, sports, cultural and political content.
For example, distance training of a tutor via Zoom or Skype will not be considered as digital service.
What is Form 368?
Form 368 is required for companies selling digital or MOSS (Mini One Stop Shop) services for online sales to EU countries within. For companies registered in Spain for MOSS through form 034, the company must file a tax return only in Spain and not in all countries where consumers are resident. MOSS is only applicable below a certain threshold.
The form must be filed electronically, in the electronic headquarters of the State Tax Administration Agency (Agencia Estatal de Administración Tributaria).
This declaration must be submitted each quarter, during the first twenty calendar days of the month immediately following the corresponding quarterly period to which the declaration refers and regardless of whether or not telecommunications, radio or television broadcasting and electronic services have been provided during that period.
To which businesses does the law apply?
European law distinguishes between sales or services made on the Internet and services made available exclusively through a website.
Non-exclusive online product or service
If the services or products offered can be requested by other means, such as a phone call or by going to a physical shop, they are not considered strictly digital services. In this case, the internet is only one of several means by which you can make first contact.
Exclusive online product or service
If the company operates exclusively through the Internet, it is a service or product acquired with minimal or no human intervention, such as downloads of e-books, multimedia or access to web applications or platforms.
Where and how are they taxed?
The general rule is that a service is taxed according to the laws of the country in which the service is provided.
Nonetheless, specific rules apply to digital services. Different criteria will apply whether the end-consumer is a company/professional or a private individual, on one hand, and whether the service is provided to a consumer established in Spain, in another EU country or in a country outside the EU, on the other hand.
1. If the end-consumer is established in Spain, the electronic service provided will be taxed with Spanish VAT, regardless of whether the end-consumer is a company/professional or a private individual.
2. If the end-consumer is established in another EU country:
- The end consumer is a private individual: This is the case for which the Form 368 should be considered.From the 1st January 2019 the limit on which the company will have to apply the VAT rate of the country where the consumer resides will be 10,000 euros. (before VAT).
Under this threshold, Spanish VAT will be included in the invoice.
Above this threshold, the Spanish company must register as a VAT collector in the EU country and pay VAT there. In this case, the invoicing program must apply the target VAT rate to invoices issued in that country.
An alternative to this would be registering to the consumer’s country system or to the Special Regime for electronic services in which case the €10,000.00 does not apply. In this case, the invoice should include the VAT of the country where the consumer is established.
The end-consumer is a company/professional: if both the buyer and the seller have a VAT number, the invoice will not include VAT.
- El consumidor final es una empresa/profesional: si tanto el comprador como el vendedor tienen NIF-IVA, la factura no incluirá el IVA.
3. If the end consumer is established in a non-EU country:
- The end-consumer is a private individual: In this area the legislation is not clear. According to the Spanish legislation, the invoice should include Spanish VAT, but according to the European Directive, it should include the VAT of the country where the consumer is established.
- The end consumer is a company/professional: this is tax exempted, therefore the invoice should not include VAT.
When opening an online business in Spain, it is always useful to get the opinion of a Spanish lawyer. Digital tax issues can be potentially sensitive as transactions are often regulated by European Union law and international treaties.
You can contact a tax advisor at GMTax Consultancy by email or telephone.