VAT exemption for self-employed and SMEs as of 2025

Did you know that from 2025 you could be exempted from paying VAT every quarter? The European Union Directive 2020/285 establishes a new VAT exemption scheme. In this article we tell you how it works and what new features will apply from 2025.

Self-employed organisations and the Tax Agency are negotiating to implement the new system in Spain. It is a mechanism that has been in operation in other European Union countries for some time and which needs to be perfected in Spain.

What is the VAT exemption scheme or VAT franchise?

Although the parameters of the VAT exemption scheme have yet to be defined, the following points can be defined:

  • For practical purposes, self-employed persons and SMEs with a turnover of less than 85,000 euros per year, or 100,000 euros per year if they carry out intra-Community activities, could be exempt from VAT.
  • There will only be an obligation to submit an annual sales declaration to justify compliance with the limits we have seen in the previous section. Therefore, quarterly declarations will not have to be made and the administrative burden will be reduced.
  • Invoices issued will not include any VAT and VAT expenses will not be deductible.
  • Tax obligations will be reduced, as only census declarations, VAT books, the annual VAT return and the income tax return will have to be made.

Does this new VAT franchise system benefit everyone?

The new system will largely benefit self-employed and small businesses that deduct few expenses because they do not make large purchases for their business. If they are self-employed or SMEs that deduct a lot of expenses with VAT, they will opt for the general system because it will be more beneficial for them. For example, if you are a self-employed person who works at home and has a minimal VAT expense for internet and telephone, the new system will work in your favour. However, for example, if you are a restaurant, as you make a lot of purchases from suppliers, the new system may not be as advantageous. It will therefore depend on the type of business and the VAT deductible expenses.

What will happen to the module regime?

One of the doubts that arises regarding the new franchise system is whether it will mean the elimination of the module system, and the answer is that the module system will disappear in the coming years so that it can be transferred to another system, which could be the VAT franchise system and the simplified or normal direct estimation system for personal income tax (IRPF).

Although there are still many points to be clarified about the new system, it is expected that the negotiations between self-employed associations and the Treasury will gradually define the VAT franchise system and that from 2025 it can be applied.

If you need tax help for your company, do not hesitate to contact us.