Possible Revolutionary New VAT Law for Small Businesses

There is a new proposal for a substantial change in VAT law that will allow small scale self employed businesses and companies to pay VAT on their real sales income.

All the political parties have backed a proposed change in law to modify the current VAT law for smaller self employed businesses and companies, so that their VAT payment to the tax office will only take account of sales invoices that are actually paid by their clients.

If this revolutionary proposal is finally approved, 95% of the traders in Spain would no longer suffer from the existing and significant cash flow disadvantage of having to pay VAT on their sales even though they have not been paid by their customers.

This will also hopefully put an end to the widespread and difficult to control practice of holding back invoices until the client pays. Let’s face it; the Spanish businessman is resourceful in the face of unfair tax rules!

In other EU countries this is known as cash basis VAT accounting and Spain has lagged behind other EU countries by many years in penalising its small business community with this type of unfair VAT rule.

Hopefully this change is a sign of good things to come from Government so that Spain can finally do something useful to stimulate small business activity, which, as we all know, provide the vast majority of jobs in the country. Well, we can hope…!

Spence Clarke & Co specialises in the provision of Spanish tax, legal, audit and accountancy services, mainly to foreigners with interests in Spain. Our cross-border knowledge helps clients adapt to the Spanish system with the minimum of doubt and disruption. If you have any questions about this article or any other matter contact us, with no obligation, to see how we can help you.