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VAT - Sales Tax


Value Added Tax is a European-wide sales tax. Rates vary from one country to another.

Unlike Sales Tax in most U.S. states, V.A.T. applies to all sales of good and services and not only to those made to final consumers. Food and clothing both are subject to V.A.T.

In Spain, the standard rate is 16% and applies to most supplies of goods and services. There is a reduced rate of 7% applicable to certainĀ  goods and services. There is also a "super-reduced rate" of 4% that applies, for instance, to essential food items, books, newspapers and magazines, or certain government-subsidized housing.

Certain transactions are exempted from VAT (for example, financial and insurance transactions, medical services or educational services).

Within Spain, VAT does not apply in the Canary Islands, Ceuta or Melilla, due to their political status within the European Union.

The Canary Islands have had a VAT-based indirect tax, the Canary Islands general indirect tax (IGIC), in place since January 1, 1993. IGIC is charged on supplies of goods and services on the Canary Islands by traders and professionals, as well as on imports of goods. The standard IGIC rate is 5%. Another indirect tax applies in Ceuta and Melilla (the tax on production, services and imports).

In certain cases, transactions with related entities must be valued for VAT purposes at their normal market value. There is an arm's lenght requirement.

In addition, for tax periods beginning as of 2008, certain groups of companies may be taxed under a new consolidated tax regime for VAT purposes. To qualify for the regime, the parent company must have a holding (direct or indirect) in its subsidiaries of at least 50%.

 

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