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V2822-18 26 October 2018 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · servicios prestados por vía electrónica

VAT liability for app development services depends on permanent establishment or effective use in Spain

A Spanish IT professional asks whether their app development services for an Israeli entity are subject to VAT and whether IRPF withholdings are required. The DGT states that VAT liability depends on whether the services are provided to a permanent establishment of the entity in Spain or are effectively used for operations subject to VAT in Spanish territory.

The question raised

The question is raised regarding the liability of such services for Value Added Tax and whether there is an obligation to apply withholdings under Personal Income Tax.

The DGT's ruling

Application development services are classified as services provided by electronic means. They shall be subject to VAT if the recipient has a permanent establishment in Spain that receives and uses the services for its needs. Alternatively, if there is no permanent establishment, they could be subject to tax if they are effectively used or exploited in Spain to carry out transactions subject to the tax. Regarding Personal Income Tax (IRPF), the professional is taxed in Spain on their worldwide income, and the Israeli entity must apply withholding tax if it operates in Spain through a permanent establishment or if the payments are deductible expenses.

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