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Understanding VAT Proportional Deduction for Businesses in Spain

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When it comes to businesses engaged in both taxable and non-taxable transactions, understanding VAT proportional deduction is essential.

This system allows companies to claim VAT deductions only for their taxable transactions.

Employing In Spain is here to provide valuable insights into VAT proportional deduction and its implications for international businesses operating in Spain.

Overview of VAT Proportional Deduction

Under the VAT proportional deduction system, businesses can deduct VAT based on their taxable transactions.

This means that only the VAT related to taxable activities is eligible for deduction. Non-taxable transactions are excluded from this deduction.

Recalibrating VAT Deduction for Fixed Assets

For purchases of fixed assets, businesses may need to adjust the initial VAT deduction over several subsequent years if there are fluctuations in the proportional deduction rate.

This adjustment is required when the change exceeds 10 percentage points. Each year, as the proportion of taxable to non-taxable transactions changes, the proportional deduction also shifts.

The Law mandates an adjustment to the initial deduction accordingly. The adjustment period for capital goods is five years, while for real estate, it spans ten years. Let’s illustrate this with an example:

Illustrative Example

Imagine an educational institution recording sales in year n and n+1. In year n, the institution purchases a computer with a VAT of 1,000 Euros.

With a proportional deduction rate of 60% (matching the ratio of taxable to non-taxable sales), the institution deducts a VAT of 600 Euros. In year n+1, the proportional deduction rate rises to 73% (an increase of over 10 percentage points).

As a result, the institution is entitled to an adjustment calculated as follows: 1,000 * (73% – 60%) / 5, which equates to 1,000 * 13% / 5 = 26 Euros. This adjustment calculation should continue throughout the adjustment period until n+4.

Employing In Spain VAT Services

At Employing In Spain, we have been offering comprehensive VAT services in Spain since 1996. We understand the complexities of VAT regulations and their impact on international businesses.

If you require additional information or assistance with VAT matters in Spain, do not hesitate to contact us.


Understanding VAT proportional deduction is crucial for businesses operating in Spain. Employing In Spain is dedicated to providing expert guidance and support to international companies navigating the intricacies of VAT regulations.

If you need advice on labor and employment matters or assistance with VAT compliance, contact us today. Our experienced professionals are ready to help you achieve your business goals and ensure compliance with Spanish fiscal requirements.


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