Skip to content
Back to index
V0488-22 10 March 2022 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · costas judiciales

Lawyers must charge VAT to their clients rather than the losing party in legal costs

A lawyer has requested clarification on how to tax fees in a legal proceeding where costs are to be paid by a third party. The DGT clarifies that VAT must be charged to the client (the recipient of the service) and that Income Tax (IRPF) is governed by either the accrual or cash basis, depending on the specific professional activity.

The question raised

Since the legal fees for the intervention in said judicial proceeding have not been collected, as the amount of the legal costs belongs to the insolvent entity, a question is raised regarding the taxation of those fees for VAT and Personal Income Tax (IRPF) purposes.

The DGT's ruling

The lawyer must invoice their services to their clients, who are the recipients of the provision, applying VAT at the general rate. The payment of legal costs by the losing party is an indemnity that does not involve the application of VAT between the parties to the proceedings. Regarding Personal Income Tax (IRPF), income shall be imputed according to either the accrual basis or the cash basis, depending on the option adopted by the professional.

Book your free first meeting