Application of cash basis in the management of the VAT in Spain

The Spanish Government has announced an important change for companies and self-employed persons: in 2014, cash basis will apply for the VAT instead of accrual basis.

The change consists of creating a special Schedule for the VAT, on a voluntary basis, that avoids having to report the VAT to the tax office until an invoice is charged.  This replaces the traditional criteria with billing or cash accrual.

The current VAT Act governs by accrual basis.  This means that a company must pay the tax at the time it issues an invoice regardless of when the invoice is charged.

The Law for Entreprenuers, to take effect in 2014, will include regulatory amendments to the VAT.  At that time, all pymes may take advantage of the regulatory amendments if they wish.

Freelancers with a business volume less than two million Euros and who are not subject to the regime of modules may voluntarily accept the cash basis.

Therefore, the supplier who chooses a cash basis will not enter the VAT until charging a customer, and the customer may not deduct VAT until it pays the invoice.

Because this change is optional beginning in 2014, some companies may use the cash basis and others may wish to use the current accrual criteria.

To solve any problems that may arise, one measure could be to require logbooks of VAT receipts.  However, this requirement would imply a significant increase in bureaucracy.

The European Directive 2010/45/EU of July 13, 2010 on standards for billing enables member states to establish a special scheme known as cash or cash basis.  However, the Directive does not allow for the generalized application of the cash system (only for certain operations and companies with taxable turnover not exceeding two million Euros).

Each company must assess whether it is worth applying the new cash-basis criteria.

The measure could be very useful for a company whose main clients are subject to Public Administration.  The measure may also be useful for a company that experiences adverse financial effects because of a high rate of delinquencies and late payments.

This article is not considered as legal advice

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