VAT is an indirect tax that taxes the consumption of any product or service . That is, it does not apply directly to the income of the taxpayer, but to any consumer good through its manufacturing and distribution phases. The different companies that participate in this process add VAT for their services and this finally affects the consumer.
But as not all products have the same consideration, the VAT law distinguishes between three types of VAT ( Law 37/1992, of December 28, updated as of January 1, 2009 ). In general terms, the more basic the need for a product is, the lower the VAT that is applied to it. The VAT rates in force after the tax reform of 2010 five years ago and the last VAT increase are the following:
General VAT (21%) .
It is the percentage that is applied by default to all products and services. Appliances, clothing, footwear, tobacco, DIY, plumbing services … Most articles are subject to this type and more after the latest changes, which led to this type of hairdressing services, gyms and hospitality and other similar. It includes health products, intermediate goods, medical equipment and medical instruments.
VAT reduced (10%) .
The list of products and services that are taxed at a reduced rate is very long and includes food in general (except those that support a super-reduced VAT); transport of travelers, fruit trees and shrubs, horticultural plants and aromatic plants used as seasoning.
VAT super reduced (4%) .
It is applied to the products of first necessity and receive this consideration the bread, milk, eggs, fruits, vegetables, cereals and cheeses. In addition, books, newspapers and non-advertising magazines also benefit from this VAT; medicines for human use; wheelchairs for the disabled and prosthetics and Housing for Official Protection or VPO.
And in a more graphic way, the following infographic summarizes what products and services are part of each group. #
The latest changes affected not only the percentage of VAT, but also different products . These are the ones that underwent modifications to see the VAT increase they must support:
- School material : aside from books, notebooks and certain pencils, the rest of the school material is taxed in the general rate to 21% from 4% super reduced.
- Flowers and ornamental plants : the Resolution of August 2, 2012, of the Directorate General of Taxes, on the tax rate applicable to certain deliveries of goods and services in the Value Added Tax defines what flowers and plants fall within this category and already taxed at 21% in the general rate.
- Mixed hotel services : within this definition are all establishments where there is a catering service together with a provision of recreational service. To understand it better, this would be the case of discos, nightclubs, dance halls or karaoke . It would also include saunas, swimming pools, spas and hospitality services provided by theater cafes, concert cafes, pubs and cafeterias simultaneously with musical performances and the like. Tax at 21% instead from the previous 8% at reduced rate
- Hairdressers : Your VAT passed in September 2012 from 8% to 21%.
- Movie theaters and shows : they went from the reduced rate to the general, so their VAT is 21%.
- Funerals : they also went from the reduced rate to the general, so their VAT is 21%.
- Gyms and other sports activities : they pay 21% within the general rate from the reduced one, which means a rise of 13 basic points.
- Veterinarians : went from the reduced type to the general.
- Health activities : activities that do not consist in the diagnosis, prevention and treatment of diseases became part of the general VAT. In this way, the services of laser hair removal, dermocosmetic and aesthetic surgery, mesotherapy and slimming treatments, massages provided by physiotherapists, nutrition and dietetics services, rendered by duly recognized medical or health professionals, and performed outside of the body, will no longer be exempt. medical service of diagnosis, prevention or treatment of diseases.
- Healthcare products : prescription glasses, contact lenses, prosthetics, wheelchairs or crutches will continue to enjoy the reduced VAT rate of 10%, but the rest of healthcare products will have to raise their taxation to 21%. Among the goods that will raise taxation to 21% are intermediate goods for the preparation of medicines, medical equipment, appliances, medical instruments and pharmaceutical products.
The IGIC Canario
VAT is applied throughout the national territory except in the Canary Islands, Ceuta and Melilla, which enjoy a special regime. In the case of the Canary Islands, there is a VAT variation called IGIC or General Indirect Canarian Tax that applies its own rates and which are the following:
- Type zero (0%) : applies to the delivery of water, health products, books, newspapers and reviews, the execution of works in public housing, food and passenger air transport.
- Reduced rate (3%) : it is applied to mining, chemical, textile, wood, paper industry, land transport and vehicle repair. The reduced rate in the rest of Spain is 10%.
- General type (7%) : applies to most products and those that are not included in the other categories. In the rest of Spain it is 21%.
- Intcrementado type (9.5%)
- Special type increased (13.5%) : it is applied on tobacco with a price higher than 1.8 euros per unit, alcoholic beverages, jewelery items, cartridges, furs and perfumes. In Spain it does not exist,
- Special types (20% and 35%) : the first of the types applies to the production of black tobacco and the second to the blond tobacco.
In addition, it has other features that we tell you here
How VAT works
The VAT is added along the entire manufacturing chain, so that companies include the corresponding VAT on their invoice and the VAT they have had to pay to do their work is passed on to the State. This is because the VAT falls on the consumer and not on those who participate in the chain of production of the good or service. In this sense, the companies would be exercising tax collectors for the State.
When VAT is spoken of as a regressive tax, it is not done because it falls on citizens, but because it does not take into account their income or personal circumstances and applies equally to all. Thus, who less have will suffer more tax burden due to VAT than those who have more. This is something that does not happen for example with the IRPF, where each contributor is taxed based on their earnings.
VAT for self-employed
On the other hand, companies and self-employed workers also distinguish, for accounting and tax purposes, VAT paid and VAT charged . The first one refers to the VAT that every company must include in its invoice and that is the 18% that it adds to the cost of a product and that the other company must face. The second is the VAT that the company pays when buying a good or service. In this sense the input VAT would be an income and the VAT charged an expense.
The difference between the VAT paid minus the amount charged will mark the quarterly VAT declaration that all self-employed workers must submit.
And it is that for practical purposes the companies collect the tax for the Treasury and they deliver it every three months in most cases.
When calculating the VAT charged, they must add all the invoices issued for their services, while to calculate the input tax, they will add the ones they have paid for products and services necessary to sustain their activity. Only this VAT will be considered a deductible. If the payment is not affected by the activity, it will not be possible to subtract the VAT that has been paid when making the quarterly calculation.
VAT in the world
VAT is one of the most widespread taxes and most countries use it to tax consumption and swell their coffers. In fact, it is one of the main sources of financing for the different states. What happens is that there is not much homogeneity in its application, even within structures such as the European Union, where each member has its own VAT.
From Brussels I offer recommendations so that all countries pay about 23% on average for general VAT, but still there are huge differences.
- Check the VAT rates in the EU.
Precisely for this type of differences when marketing between companies within the EU, what is known as the taxpayer’s investment is applied so that VAT is not paid and when it is charged, as in ecommerce, the country’s VAT is used of destiny.