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Practical Handbook VAT 2021

General pro rata

  1. Applies when the taxpayer carries out both transactions with and without the right to deduction and the special pro rata does not apply.

  2. The input tax is deductible at the following rate:

    Percentage of deduction = (transactions eligible for deduction ÷ total transactions) x 100

    The result is rounded up to the next highest unit.

    Criteria to be taken into account in relation to subsidies:

    Following the enactment of Law 3/2006 of 29 March, all restrictions on the right to deduction as a result of receiving any capital or recurring grant have been lifted.However, subsidies that constitute all or part of a consideration for taxable transactions and price-related subsidies, depending on whether or not they form part of the taxable amount of transactions giving rise to the right to deduct, shall be taken into account in the pro rata calculation, including them both in the numerator and in the denominator.

    Thee following are not included in either the numerator or the denominator:

    1. Transactions carried out by permanent establishments located outside the territory where the tax applies.

    2. VAT payments that have been levied on the transactions carried out by the taxpayer.

    3. Deliveries and exports of capital goods

    4. Real estate or financial transactions that do not form part of the taxable person's normal business or professional activity.

    5. Transactions not subject to tax under Article 7 of the Law on VAT.

    6. Self-consumption due to a change in the destination of inventories, using them as capital goods.

    7. Subsidies that do not form part of the tax base.

    The value of the transactions is determined as established for the determination of the taxable base, even in the case of exempt or non-taxable transactions.

    The rules on the accrual of tax apply to the temporary allocation.

    Calculation of deductible input VAT:

    1. Each calendar year, the final deduction percentage for the previous year is applied provisionally.

      A request to apply of different provisional percentage may be made when circumstances arise that are likely to alter it significantly.

      Such a request must be made within the following deadlines:

      • In January of the year in which it takes effect.

      • Before the end of the month following the month in which the circumstances justifying the request occur.

      In these cases, the amounts payable affected by the new provisional deduction percentage shall be those borne from the date indicated by the administration.When authorised in the form of positive silence, the new percentage shall be applied to the amounts paid as of the first day of the tax settlement period following the period in which the authorisation was provided.

      This application is made to the competent body of the Tax Agency and is understood to have been granted after one month has elapsed (effective the date on which the application was included in the records of the body responsible for processing it) without a resolution having been communicated.

      In the first year in which activities are performed or in the case of deductions prior to the normal supply of goods or services, the percentage of deduction shall be the percentage proposed by the taxpayer to the tax authorities, unless the tax authorities establish a different percentage.

    2. In the last self-assessment, the taxpayer calculates the final deductible pro rata on the basis of the transactions performed in the calendar year.

    3. The final deduction percentage is applied to the tax paid during the calendar year and the deductions made must be corrected.

Example:

A company is engaged in the rental of housing and business premises.

The transactions performed in year "n-1" were as follows:

  • Home rentals:12,000 euros
  • Business premises rentals:32,000 euros

The operations performed in year "n" were as follows:

  • Home rentals:20,000 euros
  • Premises rentals:25,000 euros

The input VAT in "n" for the expenses incurred on real estate (both housing and premises) amounted to 1,280 euros in the first three quarters and 160 euros in the fourth quarter.Home rentals are exempt without the right to deduction, while premises rentals are a taxable, non-exempt transaction with the right to deduction.

The rental of housing and business premises constitutes a single sector, as it comes under the same group in the National Classification of Economic Activities (CNAE), with the general pro-rata rule applying (unless the special rule applies).

Deductible input VAT

  1. The provisional pro rata percentage for year "n" is calculated based on the transactions carried out in "n-1":

    Pro-rata percentage = (Transactions eligible for deduction ÷ Total transactions) x 100 = {Rental of premises (32,000) ÷ [Rental of premises (32,000) + Home rentals (12,000)] x 100} = (32,000 ÷ 44,000) x 100 = 72.72727% = 72.72727%.

    The applicable percentage is rounded up to 73%.

  2. Application of the percentage to input VAT to obtain the input VAT that will have been deducted in the self-assessments corresponding to the first three quarters:1,280 x 73% = 934.40

  3. In the fourth quarter, the definitive deduction percentage for year n is calculated.

    Pro-rata percentage = {Rental of premises (25,000) ÷ [Rental of premises (25,000) + Home rentals (20,000)] x 100} = (25,000 ÷ 45,000) x 100 = 55.5555% = 55.5555%.

    This is rounded up to 56%.

  4. Application of the percentage to input VAT to obtain the deductible input VAT for the fourth quarter:160 x 56% = 89.60

  5. Correction of deductions from previous quarters:

    • Deduction performed:1,280 x 73% = 934.40
    • Correct deduction:1,280 x 56% = 716.80
    • Deduction surplus:217.60
  6. Deduction applicable to Q4 = 89.60 - 217.60 = - 128 euros less deduction or income.

    Check:
    • Deduction for the first three quarters 934.40
    • Deduction for the fourth quarter 128.00
    • Total:806.40
    Total input VAT in 'n':1,280 + 160 = 1,440
    1,440 x 56% = 806.40 euros