How to Reclaim VAT on an Unpaid Invoice

When we issue an invoice to a client, we are required to include the applicable VAT on that invoice. If the client fails to pay, we can reclaim the VAT included in that invoice from the Spanish Tax Authority. This is known as recovering VAT on an unpaid invoice.

Requirements for reclaiming VAT on an unpaid invoice from the tax authority

To be eligible to apply for a refund of VAT on an unpaid invoice, the following conditions must be met:

• A correctly issued invoice must exist, with VAT included.
• At least six months must have elapsed since the due date of the unpaid invoice (or one year if the client is a large company).
• You, as the recipient of the payment, must be a business owner or professional — or, alternatively, the taxable base excluding VAT must exceed €50.
• A formal refund application must be submitted.
  
  

What is the process for recovering VAT on an unpaid invoice?

If you meet the above requirements, you can follow the steps below to recover VAT on an unpaid invoice. Please note that the current minimum taxable base (excluding VAT) for claiming a VAT refund is €50.

1.      Chasing the unpaid invoice

The first step is to formally demand payment from the client. You will need to provide evidence of your attempts to collect the debt — for example, emails or telephone records. The demand should set out the invoice details, the total outstanding amount, and the VAT being claimed. It is no longer necessary for the collection request to have been made through judicial or notarial channels. It is now sufficient to demonstrate a genuine attempt to collect payment — for instance, by means of a recorded delivery letter (burofax).

2.      Issue a corrective invoice to cancel the unpaid invoice

Once you have formally claimed the unpaid invoice, you will need to issue a corrective invoice to cancel the original one. This corrective invoice must show the same amount as the original invoice, but excluding VAT.

3.      Submit the corrective invoice to Spanish Tax Authority

Once the corrective invoice has been issued, you must submit it to Spanish Tax Authority together with a specific form available through Spanish Tax Authority, so that the appropriate adjustment can be made to your tax return.

4.      Include the corrective invoice in the quarterly VAT return

Finally, you must include the corrective invoice in the relevant quarterly return in order to recover the VAT charged on the unpaid invoice.

Conesa Legal can help you with the steps outlined above. We offer a comprehensive range of tax and accounting services, from filing tax returns to day-to-day financial management. View our services here.

 View the unpaid invoice claims procedure

HOW CAN YOU PREVENT LATE PAYMENTS?

There are a number of preventive measures you can take — for example, choosing the invoicing terms that best suit your business, being clear about expectations and putting everything in writing, exercising caution with credit sales, invoicing promptly and in an organised manner, and securing advance payments where possible. Having a robust invoice and collections management system in place is essential to preventing late payments and streamlining your cash flow processes. 

Speak to a tax adviser in Barcelona: