In recent weeks, the taxation of the self-employed has returned to the forefront of public debate following headlines announcing the supposed "end of VAT" for those with lower incomes. However, from a technical and legal perspective, it is essential to qualify this assertion, as we are not dealing with the elimination of the tax, but rather a significant reform that could modify its practical application in certain situations.
The initiative, currently under consideration, proposes the introduction in Spain of the so-called VAT franchise system, a concept provided for in European Union law, but which is not yet fully developed in our country.
legal system.
Adaptation to the European framework and regulatory context
The origin of this measure lies in EU Directive 2020/285 which enables Member States to establish simplified schemes for small businesses with the aim of reducing administrative burdens and facilitating tax compliance.
This system allows self-employed individuals whose turnover does not exceed a certain threshold, presumably around €85.000 per year, to opt out of the standard VAT system. Spain, unlike most of its neighboring countries, has not yet implemented this mechanism, which has generated both
institutional pressure from the European Union as well as repeated demands from the self-employed community itself.
In this context, the recent parliamentary initiative constitutes a relevant step towards adapting the Spanish tax system to EU standards.
Functioning of the regime and purpose of the reform
From a legal and tax perspective, it is essential to clarify that VAT is not being eliminated, but rather a special, optional system is being introduced that simplifies its management.
In practice, self-employed individuals using this system do not charge VAT on their invoices, are not required to file periodic self-assessments such as forms 303 and 390, and cannot deduct the VAT paid on their expenses. This last point is key, as it breaks with the principle of tax neutrality and can turn VAT into an effective cost depending on the business structure.
The main objective of the reform is not to directly reduce the tax burden, but to decrease the formal obligations and administrative costs associated with tax compliance, especially for self-employed individuals with lower incomes.
management capacity.
Practical application and strategic assessment
The scheme will be voluntary, presumably with minimum commitment periods. Therefore, the decision to participate should be based on a prior analysis of factors such as cost structure, transaction volume, and customer type.
Generally speaking, it can be advantageous for businesses with few deductible expenses, low investment, and a focus on end consumers, where not charging VAT can improve price competitiveness. Conversely, it can be less favorable for businesses with high costs or in business-to-business relationships, where the customer values being able to deduct the tax.
In principle, this system would be compatible with the personal income tax systems, although this will depend on the final regulatory development.
Regulatory development and current situation
Despite the political progress, the measure is not yet in full implementation. Its application will require further regulatory development to specify essential aspects such as eligibility requirements, final billing limits, and conditions for remaining in the scheme.
Furthermore, it will be necessary to establish appropriate control mechanisms to ensure the correct application of the system and prevent potential misuse. Significant adjustments may be introduced during its implementation.
Economic impact and potential risks
The implementation of the franchise system also poses certain challenges from the perspective of tax neutrality and competition.
In transactions with end consumers, the absence of VAT can provide a competitive price advantage. However, in business-to-business relationships, the inability to deduct the tax can reduce the attractiveness of contracting with those operating under this scheme.
Furthermore, incentives may be created to limit billing in order not to exceed the established threshold, as well as competitive differences between operators depending on the sector.
In conclusion, it's a significant change, not the end of VAT.
The so-called “end of VAT” is, in reality, a media simplification of a technical reform. The tax is not disappearing; rather, an optional system is being introduced that modifies its application for certain self-employed workers.
This is primarily a strategic decision: whether or not to adopt this measure can have a direct impact on business profitability, depending on costs, customer type, and the type of business activity. Therefore, the analysis must be done on a case-by-case basis, considering both tax and economic factors.
María Ballesteros Gento
Tax Area
