The Monthly VAT Refund Regime, known as REDEME, is a system that allows businesses and self-employed individuals to receive VAT refunds on a monthly basis instead of waiting until the end of the fiscal year.
VAT is a tax that businesses pay when purchasing goods or services and that they pass on to their customers when selling products or providing services. If the VAT they have borne exceeds the VAT they have passed on, the business is entitled to request a refund. Normally, this is done at the end of the year, but under the REDEME regime, businesses can request the refund on a monthly basis.
Requirements for Registration
- The company must register in the monthly refund census by submitting Form 036 to the Tax Agency. Registration must be completed before the start of the fiscal year (during November), although new businesses can do so when they commence operations
- Be up to date with the requirements of the Spanish Tax Agency and have not committed any serious infringements in the last three years
- Not have been excluded from REDEME in the three years prior to the application
- The company must submit information on its issued and received invoices to the Tax Agency via the Immediate Supply of Information (SII).
Deadlines and Procedure
Once registered in REDEME, the company can start requesting monthly VAT refunds from the first month of the year in which it is registered. The steps to follow are:
- Submission of Form 303: Each month, before the 30th, the company must submit its VAT return using Form 303. This form includes the amount of VAT borne and passed on for the relevant month
- Requesting the refund: In Form 303, the company can request a refund of the balance in its favor. The Tax Agency has a period of six months to process the refund, although it is usually quicker, especially when the company complies with the SII
- Tax Agency verifications: The Tax Agency may conduct checks to ensure that the declared transactions are correct and that there are no errors in the data. If any issues are found, the refund process may be paused, or the company may be asked to correct any irregularities.
Advantages
The most evident advantage of REDEME is that it improves a company’s liquidity, as businesses can receive the money owed to them more quickly. This is especially beneficial for companies that typically have high input VAT.
Another advantage is that, due to the obligation to use the SII, companies also gain better control over their operations and the information they handle. This can help avoid errors in VAT returns and reduce potential problems with the Tax Agency.
Despite the advantages, opting into REDEME also involves certain responsibilities. The most significant of these is the obligation to use the SII, which requires the company to be technologically prepared to send invoice information electronically and promptly.
