New year – new rules, as Spain welcomes modifications to the scope of the ‘use and enjoyment’ rule following the approval of the Budget Law for 2023. Here’s what you need to know to get ahead of the newest changes, some of which can help Spanish companies gain a competitive edge.
What is the ‘use and enjoyment’ rule?
The use and enjoyment rule ensures that services are taxed where they are used and enjoyed. These services are defined within Article 59 of the EU VAT Directive and include several professional services.
Under the use and enjoyment rule, member states can overrule the general place of supply rule. However, this is contingent on the fact that the customer is not an EU resident and that the transaction meets specific criteria.
Previously in Spain, the use and enjoyment rule only applied to B2B supplies of services within the predetermined list of professional services, including financial and banking services, leasing of means of transport and electronically supplied services.
In essence, this meant that if these services were provided to a non-EU-based customer (but the actual use of the service is connected to Spain), the place of supply would shift from the non-EU country to Spain. Moreover, since its introduction, the rule has significantly broadened the scope of application. Therefore, it decreased Spanish companies’ competitiveness.
Recognising a growing need to standardise and reduce the scope of where the use and enjoyment rule is applicable, the following changes are in effect as of 2023.
Changes to the use and enjoyment rule in Spain
Following approval from the Spanish State’s Budget for 2023, the most significant changes include reducing the scope of the use and enjoyment rule in B2B transactions, meaning that the rule will now mostly apply to B2C transactions.
In B2B supplies:
In B2B transactions, the use and enjoyment rule will now only apply to certain VAT-exempt services. Generally, this will refer to the supply of finance and insurance services. However, leasing of means of transport also remains within the scope of the rule.
In B2C supplies:
The use and enjoyment rule will now also include the supplies of intangible B2C services (if the final customer is not established in the EU) when the consumption of the service takes place in Spain. Intangible services include the transfer of copyrights, financial and banking services, data processing, consultancy services, advertising services, hiring of moveable property, access to electricity and gas and supply of staff.
The impact of the new changes on Spanish companies
Spanish companies have been continuously plagued by the need for uniformity and standardisation regarding applying the ‘use and enjoyment’ rule. The existing rule (before the new changes) also gave scope for certain services to tax B2B services even if the services gave the right to deduct VAT.
The new changes aim to provide more legal clarity surrounding the rule, simplifying the process for many professional services that cater to an international clientele, as they will no longer be required to charge Spanish VAT to foreign companies.
Although the changes promote a more transparent 2023 VAT regime, in the cases where the ‘use and enjoyment’ rule still applies, the process can quickly feel complicated to master.
Leave uncertainty in 2022 with VAT IT by your side
At VAT IT, we’re always rooting for changes that simplify VAT rules and allow you to do business with clarity, consistency and confidence. So leave doubt in 2022 and take on the year with professionals on your side.