If you are planning to settle in Spain and start a business or professional activity, it is essential to understand your tax obligations—especially regarding VAT (Value Added Tax). However, not all activities are subject to VAT in Spain.
This article explains which business activities are exempt from VAT under Spanish law, specifically Article 20 of VAT Law 37/1992.
What does VAT exemption mean?
A VAT-exempt activity is one that, although generally subject to VAT, is specifically excluded from it by law.
– Important: You will not be allowed to deduct input VAT on expenses related to an exempt activity.
VAT-Exempt Business Activities in Spain
1. Medical and Healthcare Services
Exempt if provided by qualified professionals or authorized institutions:
• General practitioners and specialists
• Psychologists, speech therapists, physiotherapists
• Dental clinics and health centers
• Hospital care and medical treatment
– Example: A licensed psychologist in private practice does not charge VAT for sessions.
2. Education and Training
Exemptions apply to:
• Officially recognized educational institutions
• Private lessons on subjects in the national curriculum
• Accredited vocational training or certified programs
– Example: A private English teacher offering tutoring is VAT-exempt.
3. Residential Property Rentals
Exemptions apply to:
• Long-term rentals to individuals for usual dwelling
• Short-term holiday rentals
– Exemption does not apply to holiday rentals if additional services (reception, laundry, room service, etc) are provided during the stay of the guests, and commercial rentals.
4. Financial and Insurance Services
These are exempt from VAT:
• Financial intermediation (loans, deposits, mortgages)
• Insurance and reinsurance operations
• Transfers, payments, and banking services
– Example: A company that facilitates personal loans is not required to charge VAT.
5. Cultural, Sports, and Social Activities
Exempt when offered by non-profit organizations or under specific conditions:
• Theatre performances
• Amateur sports clubs
• Community workshops or social events
– Some exemptions require registration or official authorization.
6. Real Estate Transactions
Exemptions include:
• Sale of non-developable land
• Second and subsequent transfers of properties (unless VAT exemption is waived)
-Example: A private sale of a used apartment is not subject to VAT (but is subject to Transfer Tax).
Additional Notes
If you are moving to Spain as a freelancer or investor, and your activity falls under a VAT exemption:
• You still need to register with the Spanish Tax Office and Social Security office.
• You will not add VAT on your invoices, and cannot deduct VAT on related business expenses.
• It is crucial to determine your tax residency status, as this can affect your overall obligations.
Knowing whether your activity is exempt from VAT can help you avoid common mistakes and properly plan your accounting. While some common examples of VAT-exempt activities have been outlined, there may be exceptions due to specific circumstances. For this reason, it is advisable to consult a tax professional, such as Spence Clarke, to ensure the correct application of the current regulations.
Spence Clarke specialises in the provision of Spanish tax, accounts, law and labour 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.
