VAT on portfolio management services for clients outside the EU

Determining the place of supply of services is a critical aspect for the correct settlement of Value Added Tax (IVA). Recently, the Dirección General de Tributos (DGT) has clarified the tax treatment applicable to portfolio management services provided to clients residing outside the European Union.

What the DGT has ruled

The query presented focused on determining the place of supply of these services for taxation purposes. According to the general rule of localization, portfolio management services provided to individuals located outside the European Union are not subject to IVA.

However, the DGT establishes an exception based on Law 37/1992. Pursuant to Article 70.Two of said law, these services could be considered to be supplied in Spain if their effective use or exploitation occurs within national territory. The administration's criterion is based on where the service provided is actually utilized.

What this means for you

This criterion has direct implications for different profiles:

• Service providers: Companies offering portfolio management services must verify whether the client effectively uses the service in Spain to determine if they must apply the tax.
• Individuals outside the EU: A resident in a third state, such as Switzerland, who contracts these services could be affected by IVA if the exploitation of their portfolio takes place in Spain.

The key lies not only in the client's residence but in the nature of the exploitation of the service.

What should be done

Since the application of the effective use criterion must be analyzed on a case-by-case basis as a matter of fact, it is necessary to evaluate the actual operation of each service. Determining whether the exploitation occurs in Spain requires a detailed analysis of the activity and how the client interacts with the management of their assets. It is recommended to assess each particular situation to ensure compliance with current regulations.