VAT Recovery in Case of Non-Payment: How to Act Correctly

When an invoice remains unpaid, many businesses do not realise they can recover the VAT already declared and paid to the tax authorities. To avoid bearing an extra tax cost for unpaid invoices, it is essential to know the requirements and deadlines to adjust the taxable amount. This article explains the steps to follow, whether the debtor has been declared insolvent or not.

VAT Recovery in Case of Non-Payment: How to Act Correctly

 

What does the law say?

VAT legislation allows the taxable base to be reduced when the recipient of a transaction does not pay the VAT charged. This enables companies to recover the VAT declared and paid on unpaid invoices. To do so, a series of strict requirements and deadlines must be met.

1. Non-payment by a debtor not in insolvency proceedings

Deadline to recover:

  • Companies with annual turnover below €6,010,121.04: six months from the chargeable event date.

  • Other companies: one year.

Requirements:

  • The recipient must be a business or professional. If not, the taxable base must exceed €300 (excluding VAT).

  • The debt must be claimed through court action or notarial demand.

  • A corrective invoice must be issued within three months after the six-month or one-year period has elapsed.

  • The correction must be notified to the Tax Agency within the following month.

It is important to remember that if the client is a business, they must also declare the corrective invoice to adjust their input VAT.

2. Non-payment by a debtor in insolvency proceedings

If the debtor is declared insolvent after the chargeable event:

  • The insolvency order must be published in the Official State Gazette (BOE).

  • The corrective invoice must be issued within three months after publication.

  • The correction must be communicated to the Tax Agency within the month following issuance.

  • The corrective invoice must be sent to the client and the insolvency administrator, preferably by registered mail or burofax to prove delivery.

Limitations:
VAT cannot be recovered on amounts covered by credit insurance, bank guarantees, or secured by collateral, for the portion that is covered.

3. What happens under the cash accounting scheme?

The special cash accounting scheme allows VAT to become chargeable when the invoice is paid. However, if non-payment occurs, the deadline to adjust starts from 31 December of the year following the transaction, which can be a disadvantage in terms of liquidity. For this reason, few companies opt for this scheme.

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