The VAT franchise regime: what it is, what Europe allows, and why it does not exist in Spain

 

The VAT franchise regime is a tax tool designed to alleviate the administrative burden on small businesses and self-employed workers with lower turnover. Although expressly provided for in EU regulations, Spain has not incorporated it into its domestic legislation. This absence creates significant differences compared to other European countries and raises a recurring debate about its economic and competitive impact.

According to data from the National Federation of Self-Employed Workers Associations (ATA), around 770, 000 self-employed workers in Spain could benefit from this regime if it were in force.

What does the VAT franchise regime consist of?

Directive 2006/112/EC allows Member States to establish a special regime for small businesses whose turnover does not exceed a certain annual threshold, currently set at 85, 000 euros.

Under this system:

• The entrepreneur or professional does not charge VAT on their invoices.

• They cannot deduct the VAT incurred on their expenses.

• Formal obligations are significantly reduced (periodic declarations, records, etc.).

• The regime is optional, allowing for opting out and paying taxes under the general regime.

The Court of Justice of the European Union has clarified that the turnover should be calculated based on total revenue, not on profit.

The situation in Spain

Despite being provided for in European regulations, Spain has not regulated the VAT franchise regime. This means that:

• No entrepreneur or professional can benefit from this system, regardless of their turnover.

• Taxpayers must pay taxes under the general VAT regime or under existing special regimes (simplified, special schemes, agricultural, etc.).

• The absence of the regime is uniform throughout the territory: Autonomous Communities, foral territories, Canary Islands, Ceuta, and Melilla.

In practice, this means that small economic activities bear the same formal obligations as larger companies.

What happens in other European Union countries

In numerous Member States, the VAT franchise regime is fully operational. Countries like Italy allow entrepreneurs with turnover below 85, 000 euros to operate without charging VAT, with a significant reduction in administrative procedures.

These systems usually include:

• Possibility of voluntary waiver.

• Control mechanisms to prevent abuses.

• Communication obligations when the established thresholds are exceeded.

This regulatory diversity creates a competitive disadvantage for Spanish self-employed and microenterprises compared to their European counterparts.

Economic impact according to ATA

ATA has quantified the potential impact of the VAT franchise regime in Spain:

• 770, 000 self-employed individuals could benefit from the system.

• Estimated savings of over 500 million euros annually for the group.

• Average saving per self-employed individual of 660 euros per year, derived from:

  • 300 euros in direct administrative costs.

  • 360 euros for the time spent on VAT management.

From the State's perspective, the collection cost would range between 625 and 650 million euros annually.

The VAT franchise regime is a fully valid concept within the European framework, but it is still not implemented in Spain. Its implementation could represent a significant simplification for hundreds of thousands of self-employed individuals and microenterprises, although it would also have a relevant impact on public revenue.