The RE Tax System is a simplified IVA tax system for retailers that aims to reduce the amount of paperwork. It is compulsory for retailer businesses run by self employed individuals. How does it work? Do you need to apply the RE system to any of your clients?
Regular System vs RE System
In the regular IVA system a business collects IVA from customers when they sell and pays it back to the system when they purchase goods or services from their suppliers.
Any positive balance on the IVA account has to be paid to Hacienda every quarter.
In other words, the business pays as much IVA as it collects in its sales.
This system obliges the business to keep a ledger with issued invoices and received invoices as well as reporting the balance of the IVA account every three months.
The business owner has to keep in mind that a good part of the price to the public (effectively, 17.35% of the total) is pure tax collected in the sale process that needs to be paid back to the system in one way or another.
The RE system incorporates a change that is aiming to simplify matters, at least in theory.
It can be put in these words:
“You pay a little bit more tax to your suppliers when you buy from them, and then you can keep the IVA collected in your sales for yourself”
The “little bit more tax” to pay to your suppliers depends on the IVA rate applicable.
The standard rate of 21% IVA corresponds 5,2% RE.
In the following chart, the first pair of bars represents the sales (and its IVA) and the purchases (and its IVA). In the second pair you see how the IVA of the sales has been removed. As a way to compensate Hacienda for the reduced IVA that is now paid (only the IVA of the purchase) the RE is added to the purchases.
Once we understand the difference between the two tax systems it is time to consider some related questions:
Does it apply to your business?
The RE or Retailer’s tax system is not optional. It is mandatory for all self-employed retailers.
What is a retailer?
A retailer is a professional who sells unaltered, completed, products or items to the final consumer in the local market.
How do you pay the extra RE?
The RE is 5.2% of your purchases. But not of all the expenses, only the purchase of products to be resold (stock).
Retailers have to inform their suppliers of goods or items that they are under this tax system so that they can add the extra 5.2% in their invoices.
When retailers pay for other services such as electric or their accountant they do not pay the RE, only in their purchase of goods.
What about online sales?
If the items are sold in Amazon , Ebay or similar to the final user it still falls under the RE system.
What if I buy my goods in another EU country?
When you buy from another country of the VAT zone you cannot tell your suppliers to add 5.2% to their VAT ( obviously! they will not know what that is!)). You will need to pay 5.2% of these purchases in Spain using its specific tax form.
Note: When you buy from another EU country you need a special registration which will allow you not to pay the foreign VAT of your purchase.
What if I import items from a country out of Europe?
In this case your suppliers will not add VAT to their invoices either. The invoice will look much like an invoice issued from another EU country. The difference is that you will need to pay the IVA at the customs when the goods enter the EU. It is at this moment when retailers pay the RE tax too.
Can I get out of this tax system?
No, if you are an autonomo (self-employed). It is mandatory for self-employed retailers. However, SL companies are not subjected to it.
Why would I want to get out of it?
The RE Tax System has some disadvantages as well. As seen earlier, the IVA paid, and the RE is not deductible. It simply increases the cost of the items. This is also true of any asset purchased. Ths means that if the shop requires a big investment to set it up, the IVA paid in equipment can’t be requested back. For this reason alone it might be convenient to operate as an S.L. company.
In addition to this, there are some circumstances when the standard IVA system is more efficient. Remember that the RE system was designed to simplify matters, not to save costs. That is, for an equal selling price, sometimes the standard IVA system will result in more take-home money. This will be discussed with an interactive tool soon to be released.