Concessionaires of bar counters at municipal events must pay 21% VAT

The legal nature of contracts entered into with the Administration for the operation of hospitality services at public events has raised doubts regarding their tax treatment. Recently, the Directorate General of Taxes (DGT) has clarified the treatment of VAT applicable to the amounts that must be paid for this concept.

What the DGT has ruled

The inquiry focused on determining whether the amounts an individual must pay to a city council for the concession or authorization to operate bar counters at municipal events are subject to Value Added Tax (IVA). The body has ruled that the operation of canteens or dining areas has a marked entrepreneurial character.

According to the interpretation of current regulations, the Administration acts in these cases as an entrepreneur or professional. Therefore, regardless of whether the contract is formalized as a service concession, a domain concession, or a service contract under Law 9/2017 on Public Sector Contracts, the resulting fee constitutes a provision of services. Consequently, said fee is subject to the general rate of 21% VAT, in accordance with the provisions of Law 37/1992.

What it means for you

If you are a natural or legal person intending to be awarded the operation of bar counters at events organized by city councils, you must consider that the cost of the fee will not be a net amount. The fee agreed upon with the Administration will be increased by the 21% tax rate.

This criterion eliminates the possibility of considering these payments as mere fees or non-taxable income, as it is understood that there is consideration for a service of an entrepreneurial nature. The character of the hospitality activity prevails over the nature of the administrative contract that regulates it.

What you should do

It is necessary to integrate the VAT cost into the economic viability calculations of the activity before participating in award or bidding processes. Since it is a tax that must be paid to the Administration, the operating budget must contemplate this increase in cash flow to avoid deviations in the planned profit margins.