EU Commission sues Spain over failure to implement VAT franchise for small businesses

The European Commission referred Spain to the Court of Justice of the EU on March 11, seeking financial sanctions for failing to transpose two VAT directives into national law. The most significant is Council Directive 2020/285, which allows member states to exempt small businesses and self-employed workers with annual turnover under EUR 85,000 from charging VAT. Spain is the only EU country that missed the December 31, 2024 deadline and failed to respond to formal notices.

Spain’s Finance Ministry has explicitly refused to implement the domestic VAT franchise, arguing that existing simplified regimes are sufficient. However, Spain remains obliged to transpose the provisions enabling Spanish businesses to benefit from the regime when selling to customers in other EU member states. The failure to do so risks double taxation and competitive distortions for Spanish freelancers and small businesses operating cross-border.

For autonomos and freelancers in Spain, this is a significant development. While a domestic VAT exemption would have relieved small earners of the obligation to charge and remit IVA from the first euro, the government’s refusal means that burden remains. The CJEU case could take months or years to resolve, but the financial penalties and political pressure may eventually force Spain’s hand. Meanwhile, the Canary Islands are moving ahead independently with their own IGIC exemption threshold.