While most businesses focus on the VAT charged to their customers, it is equally critical to understand when and how to claim refunds on input VAT. This guide examines key scenarios where a company may reclaim input VAT, drawing upon Law 37/1992, of 28 December, on Value Added Tax, and other relevant regulations, supplemented by practical examples for clarity.
What is input VAT?
Input VAT is the tax a business pays when acquiring goods or services necessary for its operations. For instance, if a company purchases office supplies, the VAT included in the invoice is considered input VAT. According to Articles 92 and 97 of the VAT Law, this amount may be recoverable, either fully or partially, through the relevant VAT return, subject to the nature of the transaction and associated conditions.
When can a business request a VAT refund?
Several scenarios are outlined in the VAT Law under which businesses can claim a refund for input VAT:
VAT-exempt transactions
Articles 20 and 21 of the VAT Law state that businesses conducting exempt transactions, such as certain educational, healthcare, or financial services, may deduct input VAT incurred on related purchases. For example, a school purchasing educational materials for its classes can claim the VAT on these items, as its services are exempt from VAT.
Goods imports
Under Article 27 of the VAT Law, businesses importing goods must pay VAT at customs. This input VAT may subsequently be recovered via the VAT return. For example, a company importing production machinery can reclaim the VAT paid during customs clearance, yielding significant financial relief.
Reduced or ceased business activities
If a company significantly downsizes or ceases trading, it can claim refunds on input VAT associated with unsold inventory or unused assets, as per Article 111 of the VAT Law. For instance, a clothing retailer shutting down its operations can recover VAT on remaining stock.
Exports
Article 21 of the VAT Law specifies that exports of goods or services are VAT-exempt. However, exporting companies can recover VAT incurred on inputs used for producing exported goods. For example, a winery exporting wine may claim the VAT on grape purchases and other production-related expenses.
Excess input VAT over output VAT
In cases where input VAT exceeds output VAT — often during periods of high initial expenditure before generating revenue — companies can claim a refund under Article 116 of the VAT Law. For example, a startup investing heavily in its early stages can request reimbursement for surplus VAT paid.
Steps for claiming a VAT refund
To request the refund of input VAT, companies must follow a specific procedure and file the appropriate forms with the Tax Agency:
Invoice compilation
Businesses must collect all invoices evidencing input VAT, ensuring they meet formal requirements outlined in Article 97 of the VAT Law and the Invoicing Regulation (Royal Decree 1619/2012).
Submitting the appropriate form
Companies must submit the correct VAT form based on their specific circumstances:
- Form 303: This is the standard quarterly VAT self-assessment form. Businesses conducting taxable activities in Spain typically use it. If input VAT exceeds output VAT at the end of the tax period, a refund can be requested using this form
- Form 360: Utilised by Spanish companies reclaiming VAT paid in other EU countries, as governed by Directive 2008/9/EC
- Form 361: Designed for non-EU businesses claiming VAT refunds in Spain under Article 119 bis of the VAT Law, provided they do not conduct taxable transactions within Spain.
Awaiting resolution
The Spanish Tax Agency has six months to issue a response, as stipulated in Article 115 of the VAT Law. If no response is provided within this period, the request is deemed rejected through administrative silence.
Conclusion
Reclaiming input VAT is an invaluable strategy for optimising liquidity and financial efficiency in businesses. Effective VAT planning not only conserves resources but also enables companies to focus on growth and operational excellence.