1. How to Issue a VAT-Exempt Invoice
When issuing invoices, keep in mind that not all of them include VAT.
In reality, the process isn’t much different from regular invoicing, but it’s important to understand its specific details.
So, let’s take a look at how to issue a VAT-exempt invoice.
Take note!
2. Which invoices are VAT-exempt?
Value-Added Tax (VAT) is linked to the consumption of goods and services.
However, according to Law 37/1992 of December 28, there are certain professional sectors that are exempt, such as those listed below:
– Healthcare services.
– Education.
– Private lessons.
– Artistic services subject to copyright.
– Insurance, capitalization, loan, and credit operations.
– Real estate activities.
– Nonprofit sports and cultural activities.
– Postal services.
– Supplies of goods and services related to political parties.
Deliveries of goods outside Spanish borders (exports) and, generally, to the Canary Islands, Ceuta, and Melilla are also exempt from VAT.
Additionally, you must distinguish between:
– Invoice for a VAT-exempt activity. Although the tax should apply, the law has excluded these transactions. It is, therefore, a waiver of payment by the government.
– Invoices not subject to VAT. Value-Added Tax does not apply due to the nature of the transaction, as it does not meet the conditions defined by law for this tax. An example? The sale of a pre-owned apartment between private individuals.
3. How do you issue VAT-exempt invoices?
Here are the steps you need to follow:
1. Include the required information on any invoice: invoice number, date of issuance and due date, first and last name or business name, tax ID number (NIF or CIF), tax address, description of the transaction, tax base, and total amount of the invoice.
2. Indicate whether the transaction is VAT-exempt or not subject to VAT. You must specify this in the tax section of the invoice.
3. If the transaction is VAT-exempt, include a written note explaining why it is exempt from VAT. This information is essential for the tax authorities, so be sure not to omit it. In this justification, refer to Directive 2006/112/EC of November 28.
4. Specifically, if a reverse charge applies, this must also be reflected in the document you prepare.
Furthermore, please note that the responsibility for whether or not to charge the tax lies with the supplier. Therefore, if you receive a purchase invoice of this type, you must record it in your books using the information it contains.
4. How can you use factoring to pay VAT?
One of the unique aspects of VAT payment is that it is due quarterly, regardless of whether the invoices in question have been collected or not.
This can create cash flow problems, since if payment is not received, you must advance the government money that has not yet been collected. In this context, invoice factoring is a highly recommended financing alternative .
Invoice Financing, also known as factoring, is a financial service that helps bridge working capital gaps by converting your credit sales into cash sales.
5. With or without recourse?
There are different types of factoring available on the market.
If you decide to opt for invoice financing—whether or not the invoices are VAT-exempt—you should consider the differences between:
– Non-recourse factoring. In the event of non-payment, the financial institution will assume the resulting liabilities.
– Recourse factoring. In the event of non-payment, both the assignor and the debtor will be jointly and severally liable for the debt.
The cost varies depending on which service you choose. When the financial institution assumes the risk of non-payment, the costs are higher. However, this option protects your receivables from customer default.
6. Workcapital’sReliability and Effectiveness
At Workcapital, we have extensive experience in the industry, underpinned by a commitment to service and a dedication to each client.
We tailor our services to your needs and provide you with a streamlined, transparent, and reliable service.
Call us for a no-obligation consultation!
Discounting of Promissory Notes
