Spain: Issues to be considered by financial, insurance industries when calculating VAT pro-rata for 2023

Issues to be considered by financial and insurance industries when calculating VAT pro-rata for 2023

Issues to be considered by financial and insurance industries

Law 13/2023 (24 May 2023) introduced a number of relevant amendments for the financial and insurance industries. Read TaxNewsFlash

One such amendment was the elimination of application of the value added tax (VAT) use and enjoyment rule. This modification is likely to have a significant impact on the VAT deductibility regime applicable to entities that provide financial and insurance services to entrepreneurs or professionals not established in the European Union (EU). In many cases, this could entail a relevant VAT saving, to the extent that these operations could be included in the numerator of the VAT pro-rata calculation, thus increasing the amount of input VAT recoverable by such entities.

The impact will be especially notable in the case of financial entities that have contracted derivatives, whether for hedging or speculation purposes, with counterparties not established in the EU. It will also be particularly important, in the wake of this legislative amendment, to review the amount to be included in the pro-rata calculation in respect of financial and insurance operations, taking into account the rules for determining the tax base of such operations and the effective date of this legislative amendment, as well as the applicable accrual rules.

In this regard, the VAT return corresponding to the last period of 2023 (to be filed by 30 January 2024) will be the first return in which the effects of this modification on the calculation of the VAT pro-rata will need to be considered.

Read a January 2024 report [PDF 493 KB] prepared by the KPMG member firm in Spain


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