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    Reclamación del IVA

    Claiming VAT back on Unpaid Invoices: A Complete Guide

    In Spain, legislation offers companies the possibility of recovering VAT paid on unpaid invoices, claim vat back is an essential process to protect the liquidity of the business. However, it is essential to apply for the refund on the basis of a complex process.

    What is VAT Recovery of Unpaid Invoices?

    When a business issues an invoice, it is obliged to account for the corresponding VAT even if it has not received payment from the customer. This can cause significant financial damage if the customer never pays the invoice. The VAT Law in Spain allows for the recovery of VAT in certain circumstances, provided that certain requirements are met and established procedures are followed.

    Requirements for recovering VAT from unpaid invoices

    In order to recover VAT on an unpaid invoice, it is necessary to comply with a number of conditions set out in the VAT Law (Law 37/1992). These are the key requirements:

    • Existence of an uncollectible debt: It must be demonstrated that the debt is uncollectible, which can occur in two main scenarios:
    1. Declaration of insolvency of the debtor: If the customer has been declared insolvent, VAT recovery may be requested.
    2. Passage of one year from the date of the invoice without having been paid: In the case of small companies (with a turnover of less than 6,010,121.04 euros), this period is reduced to six months.
    • Judicial or notarial claim: The law requires the creditor to have initiated a judicial claim in an attempt to collect the debt, or to have made a notarial claim. This step is essential in order to be able to justify the recovery of the VAT.
    • Rectification of the invoice: A rectifying invoice must be issued, cancelling the original VAT. This invoice must be sent to the debtor.
    • Notification to the Tax Agency: Once the corrective invoice has been issued, the Tax Agency must be notified of the desire to recover the VAT, providing all the required documentation.

    Deadlines for Recovering VAT on Unpaid Invoices

    The deadline for applying for a VAT refund varies according to the circumstances, but in general, the process must be initiated within three months of the fulfilment of the above requirements, i.e. from the moment the debt is considered uncollectible (after one year or six months in the case of small businesses) or from the debtor’s declaration of insolvency.

    The application for a VAT refund must be made within three months of the date on which the corrective invoice is issued.

    VAT Recovery Procedure: Step by Step

    • Judicial or notarial claim: As mentioned above, it is essential to try to collect the debt by means of a judicial or notarial claim. This proves the good faith of the company to try to recover the amount owed.
      Issuance of the rectifying invoice: If the debt cannot be collected after the period stipulated by law (one year or six months for small businesses), a rectifying invoice must be issued in which the VAT is cancelled. The corrective invoice must reflect the negative amount of VAT corresponding to the unpaid invoice.
      Notification to the Tax Agency: After issuing the corrective invoice, the Tax Agency must be notified of the intention to recover the VAT, providing the following documentation:
      The original unpaid invoice.
      The corrective invoice.
      Proof of the judicial or notarial claim made.
      Statement from the company accrediting that the debt is uncollectible.
      Presentation on form 303: The amount of VAT on unpaid invoices must be included on form 303 corresponding to the period in which the corrective invoice was issued. This figure will be reflected in the section corresponding to VAT refunds.
      Review and approval by the Tax Agency: Once the application has been submitted, the Tax Agency will analyse the documentation and may approve the VAT refund if all the legal requirements are met.

    Fiscal Implications and Considerations

    The recovery of VAT on unpaid invoices is not only a financial relief for businesses, it also has tax implications that are important to consider. On the one hand, the company will be able to deduct the VAT refunded in its quarterly tax return. On the other hand, if the customer finally pays the debt, the recovered VAT must be refunded to the Tax Agency.

    Clear and accurate accounting is essential to avoid problems with the tax authorities. In some cases, the tax office may request additional evidence, so it is advisable to keep a comprehensive record of unpaid invoices, collection efforts and any judicial or notarial proceedings that have been initiated.

    What happens if the requirements are not met?

    If the above-mentioned requirements are not met, the company will not be able to claim VAT recovery. This may occur if the judicial or notarial claim is not made, if the corrective invoice is not issued within the established deadline, or if the corresponding documentation is not submitted to the Tax Agency.

    Moreover, not all unpaid invoices entitle to a VAT refund. For example, in the case of services provided to private individuals who are not subject to VAT, it is not possible to claim a VAT refund.

    The recovery of VAT on unpaid invoices is a key process to ensure the financial viability of businesses in Spain. If you have problems arising from unpaid invoices, at Asesoría Orihuela Costa we offer you a fiscal and accounting solution, so that unpaid invoices do not affect your company.