Spain has been ignoring the EU directive on VAT exemption for the self-employed for 10 months

Since January 1, 2025, Spain has failed to comply with EU Directive 2020/285, which requires member states to exempt small businesses from paying VAT (IVA). The measure involves introducing a so-called “franchise VAT” system (IVA franquiciado), allowing self-employed workers (autónomos) and SMEs with an annual turnover of up to €85,000 not to include VAT on their invoices — meaning they would neither pay it to the Treasury nor file related deductions.

According to the ATA association, this measure could benefit up to half a million self-employed workers in Spain. The exemption is designed to significantly reduce bureaucratic burdens and address liquidity problems, since many entrepreneurs are forced to pay VAT in advance on invoices that have not yet been paid by clients.

The European Commission already issued Spain an official warning in July this year (along with Bulgaria, Greece, and Romania). If the directive is not implemented, Brussels may refer the case to the EU Court of Justice and request financial penalties.

The Ministry of Finance (Hacienda) claims it intends to implement the directive by the end of 2025. However, it is also considering setting a lower threshold than €85,000 due to concerns about potential fraud — such as artificially splitting businesses to avoid taxation.

The reform has “stalled” because it is closely linked to a broader and more controversial overhaul of the tax system for the self-employed — particularly the elimination of the “modular” system (módulos), used by influential groups like taxi drivers and transporters. Governments have been postponing this reform for years, fearing protests.