Partners providing services to their company must pay VAT if they maintain autonomy

The nature of the relationship between a partner and their company is a critical point for the correct determination of the tax burden. The mere existence of a service provision contract is not enough for Value Added Tax (VAT) to apply; it is necessary to verify the operational reality of said provision.

What the DGT has ruled

The Dirección General de Tributos (DGT) has established that to determine whether services provided by a partner to the company are subject to VAT, it must be analyzed whether the professional acts independently or under a relationship of labor subordination. According to the issued criteria, liability for the tax requires the partner to meet the following requirements:

• Organization of their own material and human resources for the provision.
• Bearing the economic risk derived from their own activity.
• Absence of subordination to the company's organizational criteria.

Conversely, if the partner is subject to the entity's organization, does not receive remuneration linked to their results, and the company is the one responding to third parties, the relationship is considered employment-based and, therefore, will not be subject to VAT in accordance with Law 37/1992 and Directive 2006/112/EC.

What this means for you

If you are a professional providing services to a company of which you are a partner, the classification of your income will change depending on your degree of autonomy. If you act as an independent professional, you must issue invoices with VAT. If, instead, your activity is integrated into the company's organizational structure and you lack technical or economic autonomy, your income will have the nature of employment remuneration, falling outside the scope of VAT.

What should be done

It is necessary to evaluate the reality of the service provision to avoid tax contingencies. Companies must determine whether the services contracted from their partners are provisions subject to VAT or non-subject employment relationships. For their part, the professional must be able to prove that they organize their own resources, assume economic risks, and maintain autonomy from the company to justify the application of the tax.