Reduced application of ‘use and enjoyment rules’ in Spain from 2023
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.