Partners providing services to their company must invoice with VAT only if acting independently

The fiscal nature of services provided by a partner to their own company is a recurring point of friction in tax management. The Dirección General de Tributos (DGT) has specified the necessary elements to determine whether such remuneration should be taxed under Value Added Tax (IVA) or if, conversely, it should be considered an employment relationship exempt from this tax.

What the DGT has resolved

The administration establishes that the key lies in analyzing whether the partner acts independently or under a relationship of subordination. For the activity to be subject to IVA, certain elements of professional autonomy must be present:

• Organizational independence: The professional must not be subject to the company's organizational criteria.
• Risk and consideration: Remuneration must be linked to the results obtained and not to a fixed remuneration for time or labor.
• Liability: The partner must be liable to third parties for the activity performed.
• Means of production: In services where the human factor is decisive, it must be assessed whether the means to carry out the activity reside with the partner or the company.

If the partner is subject to the company's organization, does not receive remuneration linked to results, and the company is the one liable to third parties, the activity is considered employment-based and is not subject to IVA.

What this means for you

If you are a partner of an entity and provide professional services to it, you cannot arbitrarily decide whether to invoice with IVA or not. The tax classification will depend on the material reality of your relationship with the company. If the company structure absorbs your autonomy, your income will be treated as employment income. If you maintain your own management of your means and risks, the provision will be an operation subject to the tax.

What should be done

It is necessary to perform a case-by-case analysis of the relationship between the partner and the company. The way services are organized, who assumes the economic risks, and how the remuneration is calculated must be documented. An erroneous classification of the activity could lead to contingencies due to the incorrect application of Law 37/1992 on IVA.