What is Recargo de Equivalencia?
The Recargo de Equivalencia (RE) is a special VAT regime that is mandatory for small retailers who sell products to final consumers without any processing or manufacturing, i.e. those who act as mere intermediaries or do so-called dropshipping*.
This regime simplifies tax obligations, as the suppliers include VAT and an additional surcharge on their invoices, and are responsible for paying these amounts to Hacienda.
*Dropshipping is a business model in which a seller offers physical products to customers without the need to maintain its own inventory or manage a warehouse. In this system, the seller acts as an intermediary, transferring customer orders directly to the supplier, who stores, packages and ships the products to the final customer.
Who is obliged to apply Recargo de Equivalencia?
This RE regime applies to retailers, whether as individuals (self-employed) or as entities under the income attribution regime, whose sales to final consumers represent more than 80% of the previous year's total. It also applies if, at the start of the activity, it is expected that this percentage will be reached during the current year.
Not all activities can be included in this regime, so there are certain exclusions, meaning that RE does NOT apply if products such as the following:
- Vehicles, vessels or aircraft.
- Jewellery, precious stones and works of art.
- Industrial machinery, construction materials or petroleum products.
What does this RE regime consist of?
Suppliers apply VAT plus a specific surcharge on invoices:
- Items at the general VAT rate of 21%: 5.2% surcharge.
- Items at the reduced VAT rate of 10% : 1.4% surcharge.
- Items at the super-reduced VAT rate of 4% : 0.5% surcharge.
- Surcharge of 1.75% for tobacco.
For example, if you sell an article for which VAT is 21%, the calculation of the invoice will be as follows:
Invoice taxable amount: EUR 1000.00
21% VAT: EUR 210.00
5.2% RE: EUR 52
Total amount: EUR 1.262,00
What are traders' obligations under this regime?
- Invoicing:
- Although they do have to keep a record of sales made, they do not need to issue invoices, with certain exceptions.
- In retail sales, they may issue simplified invoices if the amount does not exceed EUR 3,000 (VAT included).
- Formalities and registrations:
- VAT books do not have to be kept, unless they carry out activities under other regimes, although it is recommended.
- If they make intra-Community acquisitions or sales subject to VAT with reverse charge, they must submit form 309.
What are the benefits of this regime?
- Tax simplification: no periodic VAT returns are submitted.
- Less administrative workload for retail traders.
What happens if I also carry out activities outside this regime?
If you combine activities under this RE regime with others under the general regime, you must keep a record book of invoices received and issue separate invoices for each activity.