Spain's Franchised VAT Scheme: Key Changes for Freelancers Starting 2025

November 27, 2024

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Significant changes are ahead in Spain regarding the modernization and simplification of tax compliance for self-employed workers. One of the most important changes in this process is the implementation of the Franchised VAT Scheme, under which freelancers and other self-employed workers will have to report and pay VAT under new rules.

Impact of the Franchised VAT Scheme

Starting in 2025, freelancers whose annual turnover is below EUR 85,000 will be able to benefit from a new tax regime called IVA Franquiciado, which stands for Franchised VAT Scheme. The scheme was created in accordance with EU Directive 2020/285 and aims to reduce administrative burdens on freelancers and other self-employed workers. In addition to the EUR 80,000 threshold, another threshold of EUR 100,000 is defined for those engaged in intra-EU transactions.

Freelancers and businesses eligible for this scheme will no longer submit quarterly VAT returns and include VAT on invoices. In essence, this means less administrative work and a reduced possibility of being penalized for late submission of VAT returns. Moreover, the fact that VAT will no longer be calculated on most invoices also means that they can lower the cost of their services for their clients.

Of course, there are some downsides to this. For example, freelancers and other businesses subject to these rules can no longer reclaim VAT on business expenses.

Conclusion

Freelance work has become widely popular in recent years, and new rules show that Spain is monitoring this industry and self-employed workers in general. Although the laws and regulations are defined to meet the needs of freelancers and similar businesses, it is crucial to see how those affected by these changes will adapt.

Also, freelancers and self-employed workers should prepare for adjustments in how errors are corrected under new rectified self-assessments and how cross-border transactions are managed.

Source: Euro Weekly News

What is Spain's Franchised VAT Scheme introduced in 2025?

Starting in 2025, Spain will implement the 'IVA Franquiciado' or Franchised VAT Scheme, aligning with EU Directive 2020/285. This scheme aims to simplify tax obligations for freelancers and small businesses by exempting eligible entities from certain VAT requirements.

Who qualifies for the Franchised VAT Scheme?

Freelancers and small businesses with an annual turnover below €85,000 are eligible for the scheme. For those engaged in intra-community operations within the EU, the threshold increases to €100,000.

What are the benefits of enrolling in the Franchised VAT Scheme?

Participants are exempt from submitting quarterly VAT returns and including VAT on invoices in many cases. This reduction in administrative tasks lowers costs and minimizes the risk of penalties for late submissions. Additionally, offering services without VAT can make pricing more competitive.

Are there any drawbacks to the Franchised VAT Scheme?

A significant disadvantage is the inability to reclaim VAT on business-related expenses. This aspect may particularly affect sectors with substantial production costs or those requiring expensive materials, as they lose the benefit of VAT deductions.

How does the new scheme impact error correction in VAT filings?

The reform introduces a 'rectified self-assessment' system to streamline error corrections in VAT filings. This unified approach replaces the previous method, which required separate requests for adjustments, aiming to expedite the correction process and reduce bureaucratic delays.

What changes are there for cross-border VAT transactions?

For transactions involving non-EU countries, freelancers must now file VAT electronically using forms like Models 360 and 361. Supporting documents, such as invoices and Unique Administrative Documents (DUA), are required, especially for imports exceeding €1,000 (€250 for fuel). Tax advisors can submit these forms on behalf of their clients, facilitating a smoother process.

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