Key takeaways
- Spain’s ‘use and enjoyment’ VAT rule taxes services where they are actually used, mainly affecting cross-border transactions with non-EU customers.
- 2023 reforms narrow its scope, limiting application in B2B services to certain VAT-exempt sectors like finance, insurance, and leasing.
- For B2C transactions, the rule still applies to intangible services used in Spain, providing greater clarity but ongoing compliance complexity.
If your business operates in Spain or if you’re a non-EU business receiving e-services from Spanish entities, you would already be aware of the ‘use and enjoyment’ VAT rules and their challenges.
The 'use and enjoyment' rule is a VAT mechanism that ensures certain services are subject to taxation in the location where they are utilized and enjoyed. The rule allows EU countries to override the general place of supply rule under specific conditions, primarily when the customer is a non-EU resident and specific criteria are met.
The wide application of the use and enjoyment rule in Spain has posed certain challenges for Spanish businesses that render services, such as electronically supplied services, financial and banking services, leasing of means of transport, etc. Applying the use and enjoyment rule essentially meant that if these services were provided to a non-EU customer, but their actual use was connected to Spain, the place of supply would shift from the non-EU country to Spain. Over time, the rule has expanded its scope, diminishing the competitiveness of Spanish companies.
Recognizing the need for standardization and a reduced scope for the use and enjoyment rule, Spain has implemented changes in 2023. These changes, primarily focus on limiting the application of the rule in the area of B2B services and focusing its application mainly on B2C transactions.
In the field of B2B supplies, the use and enjoyment rule will now only apply to specific VAT-exempt services, primarily related to finance, insurance, and leasing of means of transport.
For B2C supplies, the use and enjoyment rule will also encompass intangible services provided to non-EU customers when the consumption of the service occurs in Spain. This includes services such as data processing, consultancy services, advertising services, rental of movable property, copyright transfers, financial and banking services, access to electricity and gas, and staff supply.
The new changes aim to provide more legal clarity, simplifying the process for professional services catering to international clients as they will no longer be required to charge Spanish VAT to foreign companies.
However, while promoting a more transparent VAT regime for 2023, applying the use and enjoyment rule in specific cases can still be complex and challenging to navigate.
Frequently asked questions
What is the 'use and enjoyment' VAT rule in Spain?
The 'use and enjoyment' VAT rule ensures that certain services are taxed where they are actually used and enjoyed. It applies mainly when services are provided to non-EU customers but consumed in Spain, shifting the place of taxation from the non-EU country to Spain.
What has changed about the 'use and enjoyment' rule in Spain in 2023?
From 2023, Spain has limited the rule’s application mainly to B2C transactions. For B2B services, it now applies only to certain VAT-exempt sectors such as finance, insurance, and leasing. These changes aim to simplify VAT compliance and enhance competitiveness for Spanish businesses.
Which services are affected by Spain’s 'use and enjoyment' VAT rules?
The rule affects services like consultancy, data processing, advertising, leasing of movable property, banking, and access to electricity and gas. If these services are provided to non-EU customers but used in Spain, Spanish VAT may still apply.
