Where the transaction is taxed: place of supply and the exempt intra-EU supply of goods

Marta makes ceramic lamps in a small workshop in Seville. In March she receives her first order from a home-decor shop in Lyon: 4,000 € worth of goods. Out of habit, she drafts the invoice with 21 % Spanish VAT, another 840 €. The buyer replies at once that she will not pay that tax, sends her French VAT number and asks for an invoice without Spanish VAT. Marta hesitates: is she giving up 840 € she ought to pay to the tax office, or overcharging a customer who happens to be right? The answer depends on three checks that this module teaches you to run before invoicing.

Four transactions and one question to ask first

Between businesses in two EU Member States, VAT does not work the way it does inside Spain. Before calculating anything, you have to answer one question: where is the transaction deemed to take place? If the answer is another Member State, Spanish VAT does not apply, even though the business sits in Seville and the invoice leaves its computer.

A small business meets four situations. It sells goods to a business in another Member State: an intra-EU supply of goods. It buys goods from a supplier in another Member State: an intra-EU acquisition. It supplies services to a business customer in another Member State. And it buys services from a provider established outside Spain.

This module covers the two outgoing transactions, what the business sells. The next one covers the incoming ones, when it buys goods or services, and the invoice that goes with all of them. It assumes general knowledge of VAT and leaves out the foral regimes of the Basque Country and Navarre (article 2 of the law).

Nor does it cover the Canary Islands, Ceuta or Melilla. Article 3 of Ley 37/1992 excludes them from the «interior of the country» for VAT purposes, and any territory outside it is a third territory. Hence the Agencia Tributaria's «mainland and Balearic Islands». A sale from Las Palmas or to Ceuta is not an intra-EU transaction.

Where goods that travel are supplied

Article 68 of Ley 37/1992 distinguishes between goods that are transported and goods that are not. Goods that do not travel are supplied where they are made available to the buyer. Goods dispatched or transported to the buyer are deemed supplied in Spain when the dispatch or transport begins on Spanish territory.

The consequence surprises newcomers: Marta's sale to Lyon does take place in Spain, because the lamps leave from Seville. It does not fall outside Spanish VAT; it falls inside it, but exempt, provided it meets the conditions of article 25. The difference matters, because an exemption has requirements, and whoever fails to meet them owes the tax.

The same article 68 contains specific rules for other situations this course does not cover: goods installed or assembled at destination, chain sales with an intermediary who arranges the transport, and distance sales to consumers. If a transaction fits one of them, read the relevant paragraph of the article before invoicing.

The conditions of the article 25 exemption

Paragraph one of article 25 exempts supplies of goods dispatched or transported to the territory of another Member State. It requires the buyer to be a business or professional, or a legal person not acting as such, holding a VAT identification number assigned by a Member State other than Spain.

The law adds a requirement that is easily forgotten: the buyer must have communicated that number to the seller. It also makes the exemption conditional on the seller reporting the transaction in the recapitulative statement of intra-EU transactions, modelo 349, which article 164 lists among the obligations of every taxable person.

• The goods leave Spain for another Member State, and the transport can be proven
• The customer is a business, a professional or a legal person with a VAT number from another Member State
• The customer has communicated that number to the seller
• The transaction appears in the recapitulative statement for the period in which it becomes chargeable

The exemption has express exclusions. It does not apply when the buyer is one of the persons whose intra-EU acquisitions are not subject to VAT at destination under the criteria of article 14, nor to sales under the special scheme for second-hand goods, works of art, antiques and collectors' items.

The Agencia Tributaria page on transactions with other EU businesses puts it bluntly. The exemption applies only if the customer has communicated a valid intra-EU operator number from another Member State and the supplier reports the transaction on modelo 349. Otherwise, the supply is subject to Spanish VAT and not exempt.

Proving the transport and the customer's status

Article 13 of the Reglamento del IVA specifies how the two factual conditions are proven. The dispatch or transport is shown by any means of evidence admitted in law and, in particular, by the items of evidence in article 45a of Implementing Regulation (EU) 282/2011, depending on who arranged the transport.

This course does not list those European items of evidence; read them before your first shipment. The practical rule is the same for everyone: keep the transport documents for each order and file them with the invoice, because the exemption rests on a fact, the goods leaving Spain, that you must be able to demonstrate.

The buyer's status is shown by the VAT identification number the buyer gives the seller. That is why it is worth checking before the first invoice. The Agencia Tributaria points to the VIES system to verify the validity of the number of a customer or supplier from another Member State.

The check requires an electronic certificate or electronic ID card. If the person checking identifies with their own VAT number, the reply can be used to prove to the tax administration of a Member State that a given number was verified on a given date with a given result. Saving that reply with the order takes a minute.

When an intra-EU supply becomes chargeable

The general rule ties the chargeable event of a supply of goods to the moment they are made available. For exempt supplies under article 25, article 75.Uno.8.º sets another date: the 15th day of the month following the month in which the dispatch or transport of the goods to the buyer begins.

The same provision adds a nuance: if the invoice is issued before that date, VAT becomes chargeable on the invoice date. Goods leaving on 20 March therefore become chargeable on 15 April, or earlier if the invoice is issued before that day.

Advance payments do not follow the usual rule either. Paragraph two of article 75 makes VAT chargeable when an advance is received, but expressly excludes article 25 supplies. And the invoicing regulation exempts businesses from invoicing payments received before these exempt supplies.

The date matters because it decides the period. Under article 80 of the Reglamento del IVA, the transaction is reported in the recapitulative statement for the period in which it became chargeable. A shipment at the end of a quarter may therefore belong, for reporting purposes, to the following quarter.

Services to businesses in another Member State

For services, article 69 starts from a simple rule. When the customer is a business or professional acting as such, the service is located where the customer has its seat of economic activity or the fixed establishment the service is supplied to, wherever the provider happens to be.

Read from Spain, the rule settles the most common case. A designer in Valencia working for a company in Munich supplies a service that is not deemed to take place in Spain, but in Germany. The invoice carries no Spanish VAT, and it is the customer who, as the person liable, declares the tax in its own Member State.

The Reglamento del IVA gives this transaction a name: intra-EU supply of services. It is located outside Spain, subject to VAT and not exempt in another Member State, supplied to a business established there, and the person liable for the tax is that customer. It is also reported on modelo 349.

With consumers, the rule is reversed. If the customer is not acting as a business, the service is located where the provider is established. The designer working for a private individual in Germany charges Spanish VAT in principle, unless a special rule provides otherwise.

Article 70 sets out those special rules, which override the general one. Services connected with immovable property are taxed where the property is located. Admission to fairs, exhibitions and similar events is taxed where they take place. Restaurant and catering services, where they are physically supplied. Before invoicing such a service, read the whole article.

Sales of goods to consumers in other Member States and certain electronic services to consumers also follow a threshold of their own. Article 73 sets it at 10,000 euros, excluding VAT, for the total of those transactions within the Community in the previous calendar year. This course, focused on business-to-business transactions, does not cover that scheme.

The VAT number and the register of intra-EU operators

To trade with businesses in other Member States, the ordinary tax number is not enough. The Agencia Tributaria explains that a business established where Spanish VAT applies, the mainland or the Balearic Islands, must obtain an intra-EU VAT number by registering in the ROI if it will make intra-EU supplies or acquisitions of goods, or certain service transactions.

Those service transactions are two: services received from providers not established in Spain when the business is the person liable, and services it supplies that are located in another Member State when the customer is the person liable. It is also the number that customers in other Member States can check in VIES.

Registration is requested with the census declaration, modelo 036, by ticking box 582 and entering in box 584 the expected date of the first transaction. If the Agencia does not decide within three months, the request may be treated as refused. Apply before accepting the first order, not afterwards.

A warning on the same page avoids a frequent mistake. If a supplier from another Member State applies a small-business exemption scheme, it has no intra-EU VAT number and charges no VAT. The Spanish buyer does not account for that purchase as an intra-EU acquisition: the next module, on purchases, comes back to this.

What Marta has to check

Go back to the Lyon order. The lamps leave Seville, so the supply is located in Spain. The shop is a business and has sent its French VAT number: Marta still has to verify it in VIES, keep proof of transport and report the transaction on modelo 349. With all of that done, the invoice goes out without Spanish VAT.

If the number were invalid, the exemption would fall away and Marta would have to charge 21 % on the 4,000 €. That is why the check comes before the invoice, not after: correcting an invoice that has already been paid, as article 89 requires, means charging the customer a tax they had not budgeted for.