Spain to scrap VAT for freelancers and small businesses earning under €85,000 a year
VAT abolition for Spanish freelancers and small businesses invoicing under €85,000: who wins, who loses, and the government's tricks to dodge the EU rule.
English · Original discussion in Spanish · Published
VAT disappears for freelancers earning under €85,000: who wins and who loses
The abolition of VAT for freelancers and small businesses invoicing less than €85,000 a year, trinc pressure from the European Commission, promises administrative relief but is not a bargain for everyone. Those with few expenses (lawyers, programmers, designers) may benefit, but businesses with high costs (garages, carpentry workshops) lose out because they can no longer deduct VAT on their purchases. A quick calculation proves it: a freelancer who takes in €1,000 and spends €500 used to earn €500 net (VAT included) but will now earn only €395 without VAT. It all comes down to expenses.
How zero VAT works
The freelancer stops charging VAT to the client, but also loses the right to deduct VAT on expense invoices. For a service professional with hardly any costs (a lawyer who invoices €100 and spends €10 on paper), the net gain is clear: before, they received €100 plus VAT paid; now they receive €100 without VAT and file nothing. But for a mechanic who buys parts worth €500, the outcome is worse: before, they could deduct the VAT on those parts; now they cannot. The state gives up revenue, but only if the end customer does not pay VAT covertly. Some point out that the so-called "recargo de equivalencia" (a surcharge scheme already used in retail) could serve as a model, though it does not remove the complexity.
Which freelancers come out ahead
The measure clearly benefits freelancers with a high proportion of labour and few expenses: programmers, lawyers, designers, consultants. For them, VAT was a mere formality that often ended up costing them money. Now they invoice the same gross price and the client pays less, which may boost demand. On the other hand, for a garage or a plumber who spends on materials, the loss of the deduction may outweigh the administrative savings. The consensus in the analyses is that "it is not a bargain except for profiles with no expenses".
The threshold trap and suspicion of the government
The EU directive allows VAT to be abolished up to €85,000, but Spain may set a lower limit. A recurring suspicion is that the government will set it at €15,000 or €20,000, leaving out most freelancers. "That is where the magic of whatever they legislate will lie," one analysis warns. Moreover, exceeding the threshold during the year (because of one large invoice) creates administrative chaos: what to do with previous invoices without VAT? Regulatory uncertainty is the norm in a country where the tax authority "has wanted to stretch the rope to the very end". The open question is whether this measure, in the hands of a government that has already been fined for failing to implement it, will turn out to be real relief or a new bureaucratic straitjacket.
Related discussions in the forum
The abolition of VAT for freelancers and small businesses invoicing less than €85,000 a year, trinc pressure from the European Commission, promises administrative relief but is not a bargain for everyone. Those with few expenses (lawyers, programmers, designers) may benefit, but businesses with high costs (garages, carpentry workshops) lose out because they can no longer deduct VAT on their purchases. A quick calculation proves it: a freelancer who takes in €1,000 and spends €500 used to earn €500 net (VAT included) but will now earn only €395 without VAT. It all comes down to expenses.
How zero VAT works
The freelancer stops charging VAT to the client, but also loses the right to deduct VAT on expense invoices. For a service professional with hardly any costs (a lawyer who invoices €100 and spends €10 on paper), the net gain is clear: before, they received €100 plus VAT paid; now they receive €100 without VAT and file nothing. But for a mechanic who buys parts worth €500, the outcome is worse: before, they could deduct the VAT on those parts; now they cannot. The state gives up revenue, but only if the end customer does not pay VAT covertly. Some point out that the so-called "recargo de equivalencia" (a surcharge scheme already used in retail) could serve as a model, though it does not remove the complexity.
Which freelancers come out ahead
The measure clearly benefits freelancers with a high proportion of labour and few expenses: programmers, lawyers, designers, consultants. For them, VAT was a mere formality that often ended up costing them money. Now they invoice the same gross price and the client pays less, which may boost demand. On the other hand, for a garage or a plumber who spends on materials, the loss of the deduction may outweigh the administrative savings. The consensus in the analyses is that "it is not a bargain except for profiles with no expenses".
The threshold trap and suspicion of the government
The EU directive allows VAT to be abolished up to €85,000, but Spain may set a lower limit. A recurring suspicion is that the government will set it at €15,000 or €20,000, leaving out most freelancers. "That is where the magic of whatever they legislate will lie," one analysis warns. Moreover, exceeding the threshold during the year (because of one large invoice) creates administrative chaos: what to do with previous invoices without VAT? Regulatory uncertainty is the norm in a country where the tax authority "has wanted to stretch the rope to the very end". The open question is whether this measure, in the hands of a government that has already been fined for failing to implement it, will turn out to be real relief or a new bureaucratic straitjacket.
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Summary of a discussion on Burbuja.info - Foro de economía, actualidad y política., translated from Spanish and reviewed before publication. Read the full discussion (26 replies).
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