Acreditation over payment and withholding of VAT

To Our Clients and Friends:

On July 24, 2020, a second resolution of amendments to the General Rules of Foreign Trade for 2020 (RGCE) and its exhibit 1 was published in the Daily Official Gazette, whereby, among other amendments, we find the elimination of rule 4.1.11, which established the option to credit the Value Added Tax (“VAT”), in case the withholding of taxes to foreign residents was not reported.

This amendment generates that the person who did not withheld their corresponding taxes, will have to pay them, but not credit them; in other words, they will be paying the same act twice.

This in the case of imports will cause that in a sole act, the importation generates a double withholding, the payment of the import tax and also the withholding tax and the entire withholding tax.

A couple of key points are, the above assumption affects mostly those who acquire products abroad, and more so if they do not withhold or pay taxes for these operations.

Due to the above situation, the following are some scenarios to consider:

  1. Companies that did not apply for the rule: those who acquired products from foreign residents without a permanent establishment and did not submit payment in accordance to the terms of Article 1-A of the VAT Law. (In regard to this item, corrective measures are to be implemented).  
  2. Companies that have been applying the rule, and to date are still doing it, but were not able to credit the taxes in its entirety. (In such case, we have to analyze each particular case, and be aware if they are denied to continue with the benefit).
  3. Companies subject to rights of inspection, in which case, it is a matter of attending audits and trying to correct prior to closure.

Companies that have been determined to have a tax credit on the basis that they did not comply with the obligation to withhold: it depends on the documents where the exercise of rights of inspection is based, and on the components of the tax credit. (Since it should be considered that, in case of omitting the withholding and payment, the non-compliance is proportionate)

As noted, this is a topic where it is best to implement appropriate measures in the management of withholdings and payment, mainly in operations where products are purchased from abroad.

Best regards,

Manolo Pasero

Pasero Abogados, S.C

Should you require additional information, please contact us by telephone at 01152 (664) 686 5557, (619) 498 9282, fax 01152 (664) 686 5558 , by mail to PO Box 767 or by e-mail at: o

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