Anyone who ventures into self-employment has to face many challenges. In addition to the economic opportunities and risks that accompany every self-employed person right from the start, there are legal, organizational and administrative hurdles to overcome within a very short space of time. Many budding entrepreneurs only realize at a late stage that the actual business activity may be the main focus, but that there are many obligations to be fulfilled at the same time, the non-observance of which can doom the best business project to failure.
Even a task as mundane as creating an invoice can be difficult without the relevant knowledge or experience.
However, an incorrect invoice not only looks unprofessional to your first customers, but can also lead to problems with the tax authorities. Including additional tax claims. No self-employed person should afford this.
The following is therefore a brief overview of the requirements for an invoice in accordance with the relevant Spanish regulations.
As an entrepreneur or self-employed person, you are obliged to issue and hand over the corresponding invoice for the paid services provided.
The first step to the correct calculation is to answer three simple questions:
1. what special legal requirements exist in my business area?
2. what is the subject of the settlement?
3. which taxes are to be applied to the invoice?
But first things first.
1. what special legal requirements exist in my business area?
In Spain, a distinction is made between three types of invoice. There is the full invoice, the simplified invoice and the corrected invoice.
1.1 The complete invoice
The so-called complete invoice includes:
- Invoice number or identification
- Date of issue
- Date of service provision if it differs from the date of issue
- Tax number of the invoicing party
- Full name and address of the invoicing party
- Description of the service or goods
- the tax rate applied or, alternatively, the indication “including VAT”
- Invoice or service amount
- Tax number, name and address of the invoice recipient if they are an entrepreneur or self-employed person (the same applies to end customers, of course, if they request the corresponding invoice)
If there is no case that allows a simplified invoice to be issued, a full invoice must be issued. In order to enable the distinction to be made, please refer to the following explanation of the simplified invoice.
1.2 The simplified calculation
The counterpart to the full invoice is the simplified invoice. A simplified invoice can be issued in the following cases:
If the invoice amount is less than EUR 400 (including tax) and the recipient of the service is an end customer, i.e. not a company or self-employed person, a simplified invoice can be issued on a regular basis. These simplified invoices are common for small, everyday transactions. These include restaurants, cafés, bars and hotels, beauty salons and hairdressers, transport companies, dry cleaners, parking garages, door-to-door sales, sports facilities and similar businesses. Simplified invoices can also be issued in cases where this is expressly permitted by the tax authorities.
Simplified invoices are excluded for mail order and cross-border transactions, among others.
The simplified invoice differs from a full invoice in the following points:
- The invoice issuer’s address does not have to be stated in the simplified invoices.
- Simplified invoices must show the total amount, whereas for full invoices it is sufficient to state the basic amount, the applicable tax rate and the specific tax amount resulting from the application of the tax rate.
- In the simplified invoices, it is not necessary to state the tax number of the invoice recipient. This would be necessary for a complete invoice.
- The address of the invoice recipient does not have to be stated in the simplified invoice. A complete invoice, however, does.
- While the tax does not have to be shown separately on a simplified invoice, this must be done explicitly on a full invoice.
- In the case of a simplified invoice, the service or the goods sold can be described in summary form. If it is a complete invoice, the service or goods should be explained in detail.
1.3 The corrected invoice
If an error has been made in an invoice, regardless of whether it is a simplified or a complete invoice, a corrected invoice must be issued. The information for the relevant invoice type applies accordingly.
The corrected invoice must state the error that requires a new, corrected invoice to be created.
2 What is the subject of the settlement?
Depending on what is invoiced, different VAT rates are applied. The general rate is currently (December 2016) and has been 21% since September 1, 2012. There is also a reduced rate (10%) and a heavily reduced rate (4%). The reduced rate is used, for example, for restaurants, exhibitions and trade fairs. The super-reduced rate is used, for example, for medicines, books and certain foods.
However, European regulations may also apply to cross-border services. For example, if a service is provided to a company based in another EU country. In this case, the recipient of the service may have to pay VAT in their home country, i.e. to the country in which the company is based.
If a sale is made to countries outside the EU, no VAT is regularly charged.
In any case, this is a complex topic with a wealth of different constellations, which is why you should check exactly which regulations are relevant when working abroad.
Finally, it should also be noted that there are areas in which no VAT is charged, even within Spain. These include, for example, the medical sector, but also the education sector (language schools, vocational training centers, universities, etc.).
3. which taxes are to be applied to the invoice?
If the service is provided by a self-employed person to a company or to another self-employed person in the course of their work, the latter must pay part of the invoice amount directly to the Spanish tax authorities. At this point, the general advance withholding tax amounts to 15 %. This means that 15% of the basic amount of the invoice is paid directly to the tax office by the recipient of the service. This advance payment is then taken into account in the invoicing party’s income tax return and either deducted from the remaining tax liability or refunded in full or in part.
If the basic amount of the invoice is EUR 1,000.00, 15% of this amount, i.e. EUR 150.00, would have to be paid directly to the tax office by the recipient of the service. The VAT of 21%, i.e. 210.00 euros, would have to be paid directly to the invoicing party.
The service provider would therefore be paid EUR 1,060.00 by the recipient. The service recipient would pay 150.00 euros directly to the tax office.
The service provider would then pay the amount of EUR 210.00 (i.e. the VAT) from the EUR 1,060.00 to the tax office (or offset it against the VAT amounts borne by it in the accounting period).
Apart from this general advance tax retention of 15%, there are also exceptions. These are, in particular, the halved amounts of advance withholding tax (7% to be precise) for new self-employed persons in their first year of activity. In addition, there are areas of activity in which an even lower rate of 1% or 2% applies (e.g. agriculture, livestock farming and forestry).
Conclusion: As soon as you have determined which type of invoice you have to use, which tax rate is relevant and whether advance tax withholding is to be taken into account (and if so, to what extent), nothing stands in the way of correct invoicing.
