Spain-UK. The recovery of input VAT by non-established companies after Brexit. Reciprocity required.

One of the aspects of the Brexit which will have a significant practical implication is how to recover the input VAT which non-resident UK companies operating in other member states may incur since the 1^st January 2020, when there is no local VAT charged and, as a result, there are no periodical VAT returns where such input VAT can be compensated.

Vice versa, non-resident companies from any other member state operating in the UK will face the same problem since this date.  

The change that the Brexit originates is that the special procedure regulated in Directive 2008/9/EC of the Council laying down detailed rules for the refund of value added tax, to taxable persons not established in the Member State of refund but established in another Member State, will no longer apply. Instead:

a) An UK company that incurs VAT quotas in any member state where it is a non-established and is not obliged to file periodical VAT returns, would have to apply for their refund following thespecial procedure of Directive 86/560/EEC of the Council (the so called Thirteen Directive).

Besides the wide margin given to the member states to regulate the refund procedure, the main differences as compared with procedure mentioned Directive 2008/9/EC is the fact that UK companies applying for the VAT refund in other member states following this special regime are that the refund can be conditioned by the member state to:

• Appointment of a local tax representative.
• The existence of a reciprocity treatment by UK regulations of the VAT refunds to non-established.

Spain has introduced both conditions when regulating the recovery of the VAT incurred by third country applicants. Especial attention if to be addressed to the reciprocity condition as the same must be formally declared via resolution by the General Tax Directorate, which has not pronounced yet on this issue (only seven countries have been acknowledge to apply reciprocity conditions, namely: Canada - Resolution 16 May 1994 -, Israel - Resolution 23 January 2006 -, Japan - Resolution 10 September 1996 -, Monaco -Resolution 16 May 1994-, Noruega - Resolution 28 January 2010 -, Switzerland - Resolution 23 September 1996).

The Spanish Tax Agency (AEAT) has launched a specific heading at its site where further information about this topic can be found.

b) An European company that incurs VAT quotas in the UK where it is a non-established and has no obligation to file periodical VAT returns,, would have to apply for their refund refund following the special procedure foreseen in the UK regulations for this scenario.