Invoicing a client in the United States (or outside the EU): neither «exempt» nor «no VAT, end of story»

You have a client in the United States, Canada or the UK and it’s time to issue the invoice. The usual doubt arrives: do I charge VAT? And the second one, the one that ends badly: what do I write where the VAT would go? Two categorical answers circulate in forums, and both are wrong. One says the transaction is «exempt». The other says that outside the EU «no VAT applies, ever».

The short answer: if you sell services to a business or professional established outside the EU, your transaction is not exempt, it is not subject to Spanish VAT, because the service is deemed supplied in the client’s country, not in Spain.¹ But that depends on who your client is and what you sell, so this article is organised that way: first what you sell, then to whom, and finally what goes on the invoice.

First: goods or services?

This is the distinction behind most mistakes, because the article everyone cites for «invoicing abroad without VAT» is article 21 of the Spanish VAT Act, and its title is, literally, «Exemptions on exports of goods».²

• If you sell goods that physically leave the EU (a product you ship to the US), there is an exemption: the one for deliveries of goods dispatched or transported outside the EU. The law makes it subject to «the requirements laid down by regulation», meaning you must be able to prove the goods left.²
• If you sell services (design, programming, consulting, online training, translation…), the question is no longer whether there is an exemption. The question is where the service is deemed supplied. If it is deemed supplied outside Spain, your transaction doesn’t even fall within Spanish VAT: it is not subject.

The rest of this article is about services, which is what most digital freelancers invoice.

Second: who is your client?

The place-of-supply rules for services are in articles 69 and 70 of the VAT Act. The general rule changes with the recipient.

Business or professional client: the service is located where they are

For services supplied to a business or professional acting as such, the law locates the service where the client has its seat of economic activity (or a permanent establishment), «regardless of where the supplier is established and from where it provides the services».¹ You may be in Valencia: what counts is where your client is.

The tax authority’s Directorate-General for Taxes (DGT) has applied this to an almost identical case. A self-employed person resident in Spain who does graphic design, web design and digital marketing remotely for a company in a third country with no permanent establishment in Spain: the services «shall not be deemed supplied in that territory, and therefore are not subject to Value Added Tax».³

Note the wording: not subject, not exempt. That is not a stylistic nuance, and the invoice reflects it (more below).

Private client: the general rule works the other way

If your client is not a business or professional (a private individual buying for themselves), the general rule goes against you: the service is located where you are, i.e. in Spain, and therefore carries Spanish VAT.¹

There is an important exception. When the private client is established or lives outside the EU, certain services listed by the law are not deemed supplied in Spain: assignments of copyright, patents and trademarks; advertising; consulting, auditing, engineering, legal and «other similar» services; data processing and supply of information; translation, proofreading and text composition; insurance and financial services; staff secondment; film dubbing; and some rentals of movable goods, among others.⁴ The law itself carves out of the exception anyone established in the Canary Islands, Ceuta or Melilla.

The practical consequence: a service that is not on that list, supplied to a private individual outside the EU, still carries Spanish VAT, with one important exception covered right below: electronic services. And one that is on the list can fall back into Spanish VAT through the so-called effective use clause, further down.

Recorded courses, software, apps: electronic services are a separate case

If you sell private individuals a service supplied electronically (an online course with no live teacher, a subscription, a downloadable template, software or an app), the general rule for private individuals doesn’t apply: the law has a special rule for them.⁵ Under that rule, they are deemed supplied in Spain when the individual is established in Spain, or in another Member State if you haven’t exceeded the EU distance-sales threshold. The DGT applied it to a school selling online courses to clients inside and outside the EU: to private individuals, these services «shall be subject to Value Added Tax when the recipient is established in the territory of application of the Tax, as a general rule, or in another Member State» below the threshold.⁶ A private individual in the United States is in neither case, so that sale carries no Spanish VAT.

Watch what counts as electronic: the law defines it as a service transmitted entirely by electronic means, with examples such as supplying software, text or images and distance learning,⁷ and the EU rules cited by the DGT expressly exclude teaching where the course content is delivered by a teacher over the internet by remote connection.⁶ A live class over video call is not an electronic service, and goes back to the general rule for private individuals.

The «effective use» clause

Article 70.Dos of the Act adds a catch-all: the services on that list, supplied to a private individual, are deemed supplied in Spain if, even though located outside the EU, «their effective use or exploitation takes place in that territory».⁸

The DGT reads it narrowly. Among other requirements, the service must be one of those listed, the real recipient must be a private individual, and the service must be used or exploited effectively, from an economic standpoint, in Spain, which is assessed «individually according to the nature of the service».⁹ In other words: it is not enough for your American client to be on holiday in Madrid. But it isn’t a rule you can ignore if you supply those services to private individuals.

Services located in Spain no matter what

A group of services has its own rule and is deemed supplied in Spain even if your client is a foreign company. The most common one for a freelancer: services related to real estate located in Spain (letting, property management, technical services by architects or engineers on works…).¹⁰ Also admission to cultural or sporting events or trade fairs held in Spain when the recipient is a business.¹⁰ If your activity falls there, this guide doesn’t apply as is.

What to write on the invoice

First, the obligation: you must issue an invoice even if you charge no VAT. The invoicing regulation requires businesses and professionals to issue an invoice for their supplies of services, «including those not subject and those subject but exempt».¹¹ And transactions that, under the place-of-supply rules, «are deemed supplied outside the Community» (that is, outside the EU), when made by a business established in Spain, are invoiced under that same regulation.¹¹

Second, the wording. Here is the underlying mistake we dismantled above:

• If the transaction is exempt, the regulation requires «a reference to the relevant provisions of Directive 2006/112/EC (…) or to the relevant provisions of the VAT Act, or a statement that the transaction is exempt».¹² That is the wording for exports of goods, with its reference to article 21.
• If the transaction is not subject, the article listing the mandatory content of an invoice provides no specific wording.¹² So you don’t need to write «exempt», and writing it would be inaccurate.

As prudent practice (not a legal obligation), many freelancers add a line such as «Transaction not subject to VAT under place-of-supply rules (art. 69.Uno.1.º Law 37/1992)». It tells the client, and whoever reviews the invoice years later, why there is no VAT. What you shouldn’t do is cite a goods-exemption article on a services invoice.

If your client is a company, it is also wise to keep evidence that it is one and where it is established (its tax details, website, the contract). That is what decides the location, and what you’d be asked for if anyone challenges it. And in a doubtful case, the tax agency offers a tool, the «Localizador», that indicates where a service is located, whether it is subject, who must declare the tax and whether the invoice should carry VAT.¹³

What doesn’t apply to you: modelo 349 and the ROI

When invoicing a foreign client without VAT, many people assume they must file modelo 349 or register in the ROI. With a client outside the EU, you don’t.

• Modelo 349 is the EU recapitulative statement. Its regulation defines it as covering intra-community supplies and acquisitions of goods and intra-community supplies and acquisitions of services.¹⁴ A supply of services is intra-community only if, among other requirements, it is subject and not exempt in another Member State and the recipient is located in that Member State.¹⁴ The United States is not a Member State.
• The ROI (intra-community operators register) includes, among those who supply services, those whose services are deemed supplied «in the territory of another Member State» where the recipient is the taxable person.¹⁵ A supply located in the United States doesn’t meet that condition.

If a client of yours is in the EU, the story is different, and we cover it in modelo 349 and intra-community operations. And for the VAT you pay your suppliers, the basics are in input and output VAT explained.

The summary in a table

How does Cuéntamo help?

In Cuéntamo you record the invoice with its VAT (or without it) and the freelance module reflects it in your quarterly settlements; you keep seeing your real income separate from the VAT that isn’t yours. When you record the document you can mark it as «not subject» or «exempt»; this article tells you which one applies.

Frequently asked questions

Do I have to charge VAT to a US company?

If it is a business or professional hiring the service for its activity and it has no permanent establishment in Spain, no: the service is deemed supplied in its country and your transaction is not subject to Spanish VAT. The DGT confirmed this for design and digital marketing services supplied remotely by a freelancer to a company in a third country.³

Should I write «exempt transaction» on the invoice?

Not for a service. «Exempt» is the wording for exports of goods. A service supplied to a foreign company is not subject, and the invoicing regulation requires the reference to an exemption only when the transaction is exempt.¹²

What if my client is a private individual outside the EU?

It depends on the service. If it’s among those listed in article 69.Dos (consulting, advertising, translation…), it isn’t deemed supplied in Spain. If it’s an electronic service (a recorded course, software, an app), it isn’t either: it only carries Spanish VAT if the individual is in Spain or, below the threshold, in another Member State.⁶ If it’s neither, it carries Spanish VAT. And even when it is on the list, the effective use clause can bring the transaction back into Spanish VAT if the service is effectively used in Spain.⁴⁸

Do I have to file modelo 349 for invoicing a client outside the EU?

No. Modelo 349 is for transactions with other EU Member States.¹⁴

References

In the literal quotes, «the Community» means the European Union: it is the term used by the Spanish VAT Act and its regulations.

This article is checked against official sources and reviewed periodically. If you spot anything out of date, write to us at [email protected].