Spain is the only EU country not offering VAT exemption for the self-employed

Spain is the sole European Union member state that has not implemented a Value Added Tax (VAT) exemption for small businesses and the self-employed within its domestic market, placing them at a disadvantage compared to their European counterparts.

The European Union has paved the way for simplifying tax burdens for small businesses, but Spain appears to be lagging behind. Directive (EU) 2020/285, which came into effect on January 1, 2025, aims to reduce bureaucracy and facilitate cross-border operations for smaller companies. The system operates on two levels: a domestic level, where each Member State can exempt companies below a certain turnover threshold (up to €85,000) from VAT, and a cross-border level, allowing these companies to benefit from the exemption in other EU countries if their total EU turnover does not exceed €100,000.

## The domestic level: a national decision

The application of the VAT exemption at the national level is not mandatory for Member States. Each country has the discretion to decide whether or not to implement this scheme for its own businesses. However, the fact remains that **Spain** is the only country in the **European Union** that, to date, has not established any form of exemption in its domestic market. While this decision may be subject to debate and criticism, it does not constitute a breach of European regulations, as the directive grants Member States flexibility in this regard.

## The cross-border disadvantage

Where a problem does arise for Spanish companies is in the failure to transpose the EU directive for the cross-border level. **Spain's** inaction prevents its small businesses from taking advantage of this simplified scheme when operating in other **EU** countries. This means that companies from other Member States that have adapted their regulations can benefit from this facility, while Spanish ones are left out, creating a clear competitive disadvantage in the internal market. The directive requires the Member State where the company is established to channel this option and coordinate communication with the administrations of other countries.

## When is the exemption beneficial?

It is important to understand that the VAT exemption scheme is not a universal solution. While it simplifies formal and administrative obligations, it comes with a trade-off: the exclusion of the right to deduct input VAT. Therefore, it may be an advantageous option for businesses with few expenses or investments, but less convenient for activities involving significant outlays on goods or services subject to VAT. The decision to opt for this scheme should be carefully weighed according to the nature of each business.