The invoice may seem flawless: same service, same foreign customer, same staff. But if the criterion was established in 2022, it may lead to an incorrect conclusion today. The reform of the effective use rule for VAT changed the analysis of many international transactions.
And it wasn’t a minor adjustment.
Since 2023, this rule has had a much narrower scope.
It no longer applies generally to consulting, advertising, legal services, auditing, or advisory services provided between companies.
Since then, the order of the analysis has become more important. The first question is who actually receives the service and from which location or permanent establishment.
In 30 seconds: the key points of this article
- The effective VAT rule remains in effect, but its scope was narrowed in 2023.
- For business-to-business services, the general rule is that the transaction is located where the headquarters or permanent establishment receiving the service is situated.
- Article 70.2 no longer applies generally to B2B services such as consulting, advertising, legal services, auditing, or advisory services.
- It remains particularly relevant today for certain intangible services provided to end consumers and for the leasing of transportation vehicles.
- Before issuing an invoice, you must verify the recipient, the receiving establishment, the nature of the service, the accrual date, and any applicable special rules.
Next come the general rule on place of supply and, where applicable, the special rules. Only a few cases currently fall under Article 70.2 of the VAT Law. Treating this as a general exception for non-EU customers means continuing to invoice according to the previous guidelines.
The effective VAT rule remains in effect, but it changed in 2023
The rule on the effective use of VAT is still in place. What has changed is its scope.
Until 2022, Article 70.2 could subject certain services provided between businesses to Spanish VAT when, despite initially being located outside the Community, their actual use or exploitation took place within the territory where the tax applies.
What Changed on January 1, 2023
As of January 1, 2023, the effective use rule for VAT no longer applies to a significant portion of services provided between businesses and professionals.
It was temporarily maintained in sectors that did not give rise to a right to deduction, such as the financial and insurance sectors, and continued to apply to the leasing of transportation vehicles.
The reform also expanded its scope to include certain intangible services provided to end consumers.
Criteria in effect since 2023 under the VAT effective use rule
Article 70.2 of the VAT Act functions as a limited catch-all provision: it no longer constitutes a general exception for B2B services provided to non-EU customers.
What Changed on May 26, 2023
The second amendment took effect on May 26, 2023. As of that date, financial and insurance transactions between business owners or professionals were also excluded from the rule.
The current wording limits the application of Article 70.2 to the services listed in Article 69.2 provided to recipients who do not act as business owners or professionals, and to the leasing of means of transportation.
OperationSystem in Effect Prior to 2023Current RegulationsConsulting, advertising, law, or B2B advisory servicesThey could be subject to taxation based on actual use in Spain.Article 70.2 no longer applies generally.B2B Financial and Insurance ServicesThey remained in place for part of 2023.They were excluded as of May 26, 2023.Certain intangible services provided to end consumersThey had a more limited scope.They may be included if the legal requirements are met.Leasing of Transportation VehiclesIt was included.It is still included.
The date, therefore, matters.
A transaction accrued in 2022, another carried out in February 2023, and a third one made today may require different responses.
Before applying the exception: What is the general rule under the effective use rule for VAT?
Starting with actual use often leads the discussion in the wrong direction.
First, you must identify the recipient and determine whether they are acting as a business or as a consumer.
When the client acts as a business owner or professional
In a business-to-business (B2B) transaction, services are generally deemed to be located where the recipient’s principal place of business or the permanent establishment receiving the services is situated.
When a company established on the Iberian Peninsula or in the Balearic Islands provides a service to another company established outside Spain, the transaction is generally not subject to Spanish VAT, unless there is a special rule regarding the place of supply or the service is actually provided to an establishment located in Spain.
Note: A non-taxable transaction falls outside the territorial scope of Spanish VAT. An exempt transaction is subject to VAT, but the law exempts the seller from passing on the tax. This distinction affects the basis for the invoice and may have other tax implications.
When the recipient is an end consumer
In B2C transactions, the general rule is based on the location where the service provider is established. Certain intangible services provided to individuals established outside the European Union, however, are not subject to Spanish VAT.
Article 70.2 remains particularly important for certain B2C intangible services that were initially excluded from Spanish VAT.
If one of those services is actually used or provided within the tax jurisdiction—the Iberian Peninsula and the Balearic Islands—the rule may again attribute the provision of the service to the tax jurisdiction.
What Is the Rule of Actual Use or Exploitation?
The effective use rule is a closing rule that allows certain services to be deemed to be performed within Spanish VAT territory even though, under ordinary rules, they would be considered to have been performed outside the European Union, the Canary Islands, Ceuta, or Melilla, but are in fact used or exploited on the Spanish mainland or in the Balearic Islands.
It does not replace the general rules, nor does it mean that any economic relationship with Spain is subject to Spanish VAT.
First, it must be determined whether the service falls into one of the categories currently listed in Article 70.2. Only then should an analysis be conducted to determine where the service is actually used or exploited.
What does it mean for the service to be actually used in Spain?
The VAT Act uses the concept of “actual use” or “actual exploitation,” but its application requires an examination of the facts of the transaction.
It is necessary to determine where the service is utilized from an economic perspective and what connection it has to the activity or consumption taking place within the tax jurisdiction.
The fact that a service has an impact in Spain does not, in and of itself, mean that it is subject to Spanish VAT.
But the connection must be sufficiently direct. A side effect—whether remote or merely contingent—in Spain does not, in and of itself, change the location of the service.
Before analyzing the economic connection to the TAI, a preliminary issue must be resolved: whether the transaction falls within the current scope of Article 70.2.
The Spanish VAT territory does not include all of Spain
The Spanish VAT territory (TAI) includes the Iberian Peninsula and the Balearic Islands. The Canary Islands, Ceuta, and Melilla are not part of the TAI.
The law refers to these territories separately. A benefit related to them should not be treated as if it were located on the mainland or in the Balearic Islands.
Rule on the Effective Application of VAT: To Which Transactions Does Article 70.2 Currently Apply?
Many internal memos still describe a broader rule than the one currently in effect. The current scope is much more specific.
Intangible services provided to end consumers
The rule on effective use of VAT may apply to the services listed in Article 69.2 when the recipient is not acting as a business or professional.
These include, subject to the qualifications set forth in the regulation:
- Intellectual and industrial property: assignments and grants of copyrights, patents, licenses, trademarks, and other similar rights.
- Professional services: advertising, advisory services, auditing, engineering, legal services, consulting, and similar services.
- Information and content: data processing, provision of information, translation, proofreading, and typesetting.
- Financial and insurance services: subject to the terms and exclusions set forth in the VAT Act.
- Other services: secondment of personnel, leasing of certain movable property, mediation, and certain “do-not” obligations.
The inclusion of a service on the list in Article 69.2 does not, in and of itself, trigger the application of Article 70.2.
The territorial conditions of the closure rule must also be met, and there must be actual use or operation within the TAI.
Leasing of Transportation Vehicles
The leasing of transportation vehicles constitutes the second category expressly included in the current text.
This issue requires an examination of the lease term, the lessee’s status, the location where the vehicle is made available, and the territory in which the vehicle is actually used.
Like other cases, it refers to actual use, but it is based on its own localization rules.
Does this apply to consulting, advertising, law, or business advisory services?
Here is one of the changes that has led to the most errors in the rule for the effective application of VAT.
In general, Article 70.2 no longer applies to these services when they are provided between business owners or professionals.
A Spanish consulting firm working for a company based in the United States should not decide whether to charge VAT by first asking itself where its report will have an effect. It must determine which entity receives the service, from which office or establishment, and whether any special rules apply.
The general B2B rule is based on the location where the recipient of the service is established. When that location is outside the TAI, the supply is generally not subject to Spanish VAT.
Real estate-related services, access to certain events, dining, and other services are subject to special rules that may result in a different response.
Do you work with clients outside of Spain?
The place of VAT taxation for international services depends on the recipient, the receiving establishment, and the date of accrual. Our tax advisory team reviews the applicable treatment before the invoice is finalized.
The mistake of automatically applying the above criterion to 2023
The problem is usually stored in a shared folder: an invoice template, an internal memo, or a supplier policy drafted when Article 70.2 had a different scope.
The document may seem flawless. The date gives it away.
Applying a conclusion reached under the 2022 regulations today may result in an undue VAT impact. The opposite may also occur when reviewing a past invoice under current rules.
It is this discrepancy between the previously cited criterion and the current regulation that, in practice, gives rise to most corrections.
How to Determine Whether an Invoice Should Include Spanish VAT
A fixed sequence prevents many errors. Skipping a step often leads to a discussion of the actual use before it is clear whether the rule can be applied.
- Identify the true nature of the service. The contract title may conceal a license, technical assistance, training, access to a platform, or services related to a property.
- Determine in what capacity the recipient is acting. A distinction must be made between business owners or professionals, end consumers, and entities that engage in both business and non-business activities.
- Identify the host office or facility. The group’s registered office does not always correspond to the location from which the work is commissioned and received.
- Apply the general rule. In B2B transactions, the starting point is the recipient’s headquarters or place of business; in B2C transactions, it is the provider’s location, subject to legal exceptions.
- Review the special rules. Real estate, transportation, restaurants, events, and other services each have their own criteria.
- Review Article 70.2. The closure rule should be examined only when both the service and the recipient fall within its current scope.
Follow-up questionEvidence that should be reviewedPossible consequenceWho actually receives the service?Contract, order, instructions, deliverables, and internal communications.The headquarters or the receiving facility may determine the location.In what capacity does the recipient act?Tax information, business activities, and the specific purpose of the contract.The starting point differs between B2B and B2C transactions.Is there a special rule?The actual nature of the service, the place of performance, and the terms of the contract.The transaction may be recorded in the TAI without invoking Article 70.2.Does the operation fall under Article 70.2?Type of service, recipient, initial location, and accrual date.Only then is it appropriate to analyze the actual use or exploitation.Where is it actually used?Users, markets, assets, projects, and economic activity directly related to the service.A sufficiently direct connection to the TAI can alter the initial location.
The Tax Agency’s service location tool provides initial guidance.
In complex contracts, the result must be compared with the actual transaction: a screen is no substitute for the contract, the deliverables, or the entity receiving the service.
What documentation should you review?
The country listed on the customer’s file is a piece of information. It isn’t always the answer.
Documentation that should support the treatment administered
- Contract and Annexes: Scope, Parties, Territories, and Included Services.
- Proposal or order: the entity commissioning the work and the agreed-upon terms.
- Customer identification: tax information and proof of business status.
- Recipient facility: headquarters, branch, or entity that receives and uses the service.
- Project Description: Deliverables, Internal Recipients, and Affected Areas.
- Communications: emails, instructions, and documentation regarding the execution of the assignment.
- Date of payment and accrual: a decisive factor when the 2023 reforms come into play.
- Tax criteria applied: location rule and possible exceptions reviewed.
Documentation takes on particular importance when several companies within the same group are involved, the contract covers multiple countries, or the service is divided among teams located in different territories.
Examples of the Application of the Rule on the Effective Use of VAT
These examples of effective VAT application help clarify the criteria, but they do not replace the facts.
A change in the recipient, the receiving establishment, the nature of the service, or the date may affect the result.
Consulting services provided to a U.S. company
A Spanish consulting firm prepares a report for a New York-based company, which receives and uses it there. The invoice does not include Spanish VAT: it reflects the client’s location, not the fact that the report discusses the Spanish market.
It would be different if that company had an office in Spain and it were that office that actually commissioned the work.
Consulting services contracted by a foreign group with a presence in Spain
The foreign parent company signs the contract, but it is its subsidiary in Spain that actually commissions and uses the service. In this case, Spanish VAT does apply: what matters is who receives the work, not who is named in the contract.
Intangible service provided to a non-EU consumer
A Spanish company provides one of the services listed in Article 69(2) to an individual outside the EU. In principle, no Spanish VAT is charged.
But if that service is actually used on the Iberian Peninsula or in the Balearic Islands, Article 70.2 may subject the transaction to Spanish VAT.
Pre-reform operation
In 2026, a consulting invoice issued in November 2022 to a company outside the EU is reviewed. It is analyzed according to the 2022 rules, not today’s rules.
The date of the transaction determines which regulations apply.
The same service, provided to the same customer, may require different responses depending on who receives it and when it is rendered. That is why it is advisable to verify the specific circumstances before applying an example to an actual transaction.
The same service, provided to the same customer, may require different responses depending on who receives it and when it is rendered. That is why it is advisable to verify the specific circumstances before applying an example to an actual transaction.
Does your situation resemble any of these examples?
Subtleties determine how VAT is handled in international transactions. Carrillo’s tax team analyzes the specific case and the supporting documentation.
Common Mistakes When Billing for International Services
The most costly errors often stem from transactions that, at the time the invoice was issued, seemed routine.
- Apply the rule learned before 2023: The criteria above may be relevant for historical invoices, but they should not be automatically applied to current transactions.
- Confusing “non-liability” with “exemption”: Both can result in an invoice with no amount due, but they are subject to different legal treatments.
- Focusing solely on the registered office: the relevant recipient may be a location or facility other than the one listed in the contract header.
- Consider that any effect in Spain triggers the rule: an indirect commercial consequence does not supersede the requirements of Article 70.2.
- Ignoring special rules: In Spain, a benefit may be subject to tax based on its own location rule without the need to consider actual use.
- Treating a business and an individual the same: the capacity in which the recipient acts changes the starting point of the analysis.
- Failing to document the criteria: months later, verbal explanations are of little use when faced with a contract, an invoice, and facts that tell different stories.
Before issuing an invoice, there is still time to organize the facts and document the rationale. Afterward, the company must reconstruct them once the VAT has already been passed on, reported, or paid by the customer.
Check the location before issuing or correcting the invoice
When multiple countries, establishments, or services are involved, the criteria must be documented before the transaction is finalized. Our tax advisory team can review the VAT treatment and the supporting documentation.
Frequently Asked Questions About the Effective Use Rule for VAT
Is the VAT effective use rule still in effect?
Yes. The rule is still set forth in Article 70.2 of the VAT Law, but its scope was narrowed in 2023. It currently remains particularly relevant for certain intangible services provided to end consumers and for the leasing of transportation vehicles.
Is consulting services provided to a company outside the EU subject to Spanish VAT?
Generally speaking, it is not subject to Spanish VAT when the business recipient of the service is established outside the TAI. The recipient’s place of establishment and any special rules that may apply to the specific service must be verified.
Is it sufficient for the service to have an effect in Spain?
No. First, it must be verified that the transaction falls within the current scope of Article 70.2. Then, it must be determined whether there is actual use or exploitation on the Iberian Peninsula or in the Balearic Islands; an indirect economic impact in Spain is not sufficient on its own.
Does the “actual use” rule still apply to legal services, advertising, or consulting?
It does not generally apply when these services are provided between businesses or professionals. It may remain relevant when the recipient is an end consumer and the other requirements of Article 70.2 are met, without prejudice to other special rules.
What happens to invoices issued before 2023 under the VAT effective use rule?
They must be analyzed in accordance with the regulations in effect on the date they were accrued. The current rules cannot be automatically applied to prior transactions, especially when a correction or tax audit is being considered.
Does the rule apply in the Canary Islands, Ceuta, or Melilla?
The Canary Islands, Ceuta, and Melilla are not part of the Spanish territory subject to VAT. Article 70.2 mentions them separately; therefore, their treatment must be determined based on the initial rule of location and the territory in which the service is used.
What evidence helps demonstrate where the service is actually being used?
The evidence depends on the specific operation, but it is typically based on the contract, deliverables, instructions received, beneficiary users or teams, the project to which the service is linked, and communications that demonstrate where it is being used cost-effectively. No single document can replace a comprehensive analysis of the facts.
What should a company do if it has already issued an invoice based on a potentially incorrect standard?
It must review the applicable regulations as of the accrual date, reconstruct the facts, and determine whether the invoice and related tax returns should be corrected. Corrections should not be made automatically: it depends on the treatment applied, the period affected, the available documentation, and whether the VAT was charged or deducted.
Regulatory references and official sources regarding the rule on the effective use of VAT
This document is based on the consolidated regulations and the reporting guidelines published by the Tax Agency.
- Law 37/1992 on Value-Added Tax. Articles 69 and 70 on the place of supply of services.
- Tax Agency: Provision of Services. General Taxation Rules and Access to the Locator.
- Tax Agency: Effective Use Rule. Official summary of the changes effective in 2023.
- Tax Agency: Law 13/2023. Amendment effective as of May 26, 2023.
This article on the rule for the effective application of VAT is for informational purposes only and does not constitute personalized tax advice. The place of VAT taxation depends on the status of the recipient, the establishment receiving the service, the nature of the service, the date of accrual, and the specific circumstances of each transaction.
