VAT and Personal Income Tax for Law Firms

VAT on Legal Services: General Rule and Exemptions

The standard VAT rate in Spain is 21 % and applies to the vast majority of services provided by a law firm: advisory work, contract drafting, litigation representation, etc.

However, Article 20.One.18 of Law 37/1992 (LIVA) establishes exemptions relevant to the legal profession:

• Services provided by court-appointed lawyers are not exempt from VAT, though the taxable person may be the Administration in certain reverse-charge scenarios.
• Family mediation services provided by accredited professionals may qualify for exemption if regional legislation supports it.
• Institutional arbitration services receive specific treatment.

Practical rule: except in very specific cases, all legal services carry VAT at 21 %.

Intra-Community VAT

When a Spanish firm provides services to a business client established in another EU Member State, the place-of-supply rule under Article 69 LIVA applies: the service is deemed supplied in the recipient's country. In practice, the invoice is issued without VAT and the client self-assesses it (reverse-charge mechanism). It is mandatory to verify the client's VAT identification number through the VIES system.

Personal Income Tax: Withholdings on Professional Invoices

Every lawyer who invoices a business or professional client is subject to income tax withholding:

• Standard rate: 15 % on the taxable base of the invoice.
• Reduced rate for new self-employed: 7 % during the year of registration and the following two years, provided the same activity was not carried out in the previous year.
• The withholding is applied by the payer (your client), who remits it to the tax authority on your behalf.

Example: you invoice 1,000 euros plus VAT to a company. The invoice reads: 1,000 + 210 (VAT 21 %) - 150 (withholding 15 %) = 1,060 euros receivable.

Form 303: Quarterly VAT Self-Assessment

Form 303 is filed quarterly (deadlines: April 1-20, July 1-20, October 1-20, and January 1-30). It reflects output VAT (charged to clients) minus input VAT (paid to suppliers). A positive result means you pay the difference. A negative result can be offset in later quarters or claimed as a refund in Q4.

Form 130: Fractional Income Tax Payment

Self-employed professionals under the direct estimation method file Form 130 quarterly. The basic calculation is: (income - expenses) x 20 % - withholdings suffered - prior fractional payments. If more than 70 % of your income already carries withholding, you may be exempt from filing Form 130.

Mandatory E-Invoicing from 2026

Law 18/2022 (Ley Crea y Crece) establishes mandatory electronic invoicing between businesses and professionals. The rollout timeline:

• Companies with turnover above 8 million euros: mandatory from 2026.
• All other businesses and professionals: mandatory from 2027.
• Law firms are included as professionals.

The electronic invoice must comply with the Facturae format or an equivalent accepted by the AEAT. This requires adapting invoicing software and ensuring electronic retention for the statutory period (4 tax years plus the current year).