What Is Happening in Spain?

New EU VAT Regulation for Self-Employed Professionals and Small Businesses

28 / Nov

Council Directive (EU) 2020/285 of 18 February 2020 (EUR-Lex text) amends Directive 2006/112/EC on the common system of Value Added Tax (VAT). Its purpose is to introduce a special VAT-exemption scheme for small enterprises and self-employed professionals.

This scheme allows Member States to grant certain operators with an annual turnover below a set threshold an exemption from charging VAT on their invoices.In exchange, those operators waive the right to deduct input VAT.

The scheme may apply to both domestic transactions and certain cross-border operations within the EU.

According to Article 3 of Directive 2020/285, Member States had to adopt the implementing rules by 31 December 2024 and apply the new regime from 1 January 2025.

Key Technical Points of the Directive

  • Maximum threshold: Member States may establish the exemption scheme provided that the taxable person’s annual turnover does not exceed €85,000 (or the equivalent in national currency);
  • Cross-border turnover limit: If the scheme also covers operations with other Member States, the company’s total turnover within the EU must not exceed €100,000 per year;
  • Optional nature: Self-employed workers and small businesses may opt to join the scheme; it is not compulsory;
  • Waiver of rights: By joining, the taxable person does not charge VAT but also cannot deduct input VAT;
  • Registration requirements: Each Member State must set up a system so that registered operators receive a special identification code (“EX…”) and, when trading cross-border, inform other Member States of their status. The State must also keep a register of those who opt in;
  • National transposition: Every Member State must incorporate at least these principles into its domestic law by the deadline.

The Situation in Spain

The European Commission has found that several Member States failed to meet the transposition deadline. In its July 2025 “Infringement Package”, the Commission announced that it had issued a reasoned opinion (second step in the infringement procedure) against Spain, together with Bulgaria, Greece and Romania, for not fully incorporating the directive into national legislation.

Official notice (Spanish representation of the Commission):
Paquete de procedimientos de infracción de julio — Principales decisiones relativas a España (17 July 2025)

The reasoned opinion gives Spain two months to adopt the necessary measures before the Commission may refer the case to the Court of Justice of the European Union (CJEU) and request financial penalties.

In short: Spain is currently in default regarding this directive. Until the national “small-business VAT exemption” law is approved, the scheme is not yet available to self-employed persons or SMEs wishing to benefit from it.

Potential impact on the self-employed and small businesses

Once Spain transposes and activates the scheme, and provided it follows the Directive’s framework, the possible effects include:

Advantages

  1. Administrative simplification: Participants would not charge VAT and therefore would not need to file the regular quarterly VAT return (Form 303 in Spain), unless national law provides otherwise;
  2. Lower compliance burden: No VAT charged → less bookkeeping of output VAT and fewer formal reporting duties;
  3. Price transparency: For end-clients, prices appear net of VAT; for suppliers, pricing becomes simpler.

Disadvantages / Considerations

  1. Loss of input VAT deduction: The supplier absorbs the VAT paid on purchases, interest, or depreciable expenses. For capital-intensive activities, this can hurt profitability;
  2. Low threshold: If annual turnover exceeds €85,000 (or the threshold Spain sets), the scheme no longer applies. Once the limit is surpassed in the current or previous year, the exemption is lost;
  3. Cross-border operations: Businesses trading with other EU countries must check additional obligations; some activities may be excluded;
  4. Timing uncertainty: Until Spain’s implementing law is published and in force, the option cannot legally be exercised;
  5. Risk of artificial split billing: The Spanish Tax Agency will monitor attempts to divide turnover among related persons or entities to stay below the limit.

Simple Numerical Example

Assume a freelancer invoiced €70,000 in 2025 and has few expenses with deductible VAT. If Spain implements the scheme with an €85,000 threshold:

  • If the freelancer opts in:
    • Does not charge VAT → clients pay a “net price.”
    • Cannot deduct input VAT → if purchasing goods worth €10,000 + 21 % VAT, they bear ~€2,100 as a cost.
  • If remaining under the general regime:
    • Charges VAT → either raises prices or passes the VAT to clients.
    • Can deduct input VAT → recovers the €2,100.

In this example, if the profit margin is narrow, the exemption could be advantageous; if the business invests heavily and pays much VAT, remaining under the general regime might be better.

Recommendations to Prepare

  1. Review turnover for the past and current year to check whether you fall below the threshold (or Spain’s eventual one);
  2. Consult your tax or accounting advisor to evaluate the effect on purchases and input VAT deductions;
  3. Monitor forthcoming Spanish legislation transposing Directive 2020/285 and its entry-into-force date;
  4. Ensure that, if you later opt in, your bookkeeping complies: proper record-keeping, invoice wording indicating “exempt under small-business VAT scheme,” and required information filings.

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Maria D. García Santos