Spain - Financial services now excluded from application of use and enjoyment rule

On 25 May 2023, the Spanish government published a law that removes the B2B supply of financial services (including insurance, reinsurance and capitalisation services) from the scope of the VAT use and enjoyment rule. This rule underwent significant changes in the 2023 General Budget by reducing the number of situations in which the rule applies to B2B transactions (for prior coverage, see the article in the January 2023 issue of Indirect Tax News).

The use and enjoyment rule determines the place of supply of services for VAT purposes when the customer is established outside the EU—in that case, the place of supply is based on where the services are used and enjoyed. As a result, where the services are actually used in Spain, the place of supply is in Spain rather than in the non-EU country.

Under the measures in the 2023 budget, which apply as from 1 January 2023, most B2B supplies of services were removed from the scope of the use and enjoyment rule, except for supplies of financial services, insurance, reinsurance and capitalisation services, and the hiring of means of transport. The changes were designed to improve the competitiveness of Spanish companies doing business with third countries, ensure that foreign companies are not deterred from investing in Spain and facilitate competitive pricing for companies based in or having a permanent establishment in Spain.

The May law further narrows the instances in which the use and enjoyment rule applies and no longer applies to the majority of B2B services. As a result, the rule applies only to B2B transactions involving transport rental services. This is a welcome change for Spanish taxpayers who were required to charge Spanish VAT and incur administrative obligations on transactions with foreign companies. The use and enjoyment rule continues to apply to B2C transactions, such as legal, translation, and advertising services.

Álvaro Gómez-Elvira
Jaime Ventosa de Bonilla
BDO in Spain

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