Municipalities must apply 10% VAT to waste management compensations

The legal nature of the economic compensations received by local entities for waste management has been clarified by the Tax Administration. The central issue lay in determining whether these revenues constituted a tax activity or if, on the contrary, they should be taxed under Value Added Tax (IVA).

What the DGT has resolved

The Dirección General de Tributos (DGT) has determined that the economic compensations received for performing activities such as the identification, classification, and storage of waste do not have a tax nature. Since they are not a tax, these operations are considered consideration for a service carried out for consideration.

Consequently, the Administration establishes that these operations are subject to IVA. Regarding the applicable tax rate, the resolution confirms that the 10% rate must be applied, as they fall within the services for the collection, storage, or management of waste provided for in current regulations.

What this means for you

For entities that manage waste and receive economic compensations, this criterion implies that these amounts cannot be considered exempt income or non-taxable in nature. The operation must be invoiced with the corresponding tax rate, complying with the tax settlement obligations.

This criterion is based on Law 37/1992 on IVA and Law 7/2022 on waste and contaminated soils, integrating the management activity as a market service subject to the consumption regulations of this tax.

What should be done

It is necessary to verify the nature of the income received for waste management to ensure that invoicing complies with the established 10% rate. The correct classification of these compensations avoids contingencies resulting from the application of incorrect rates or the omission of tax liability in periodic settlements.