Equivalence Surcharge: What It Is, Who Applies It and How It’s Invoiced

If you run a shop, a greengrocer’s or any small retail business, you have probably noticed that your supplier adds an extra percentage on top of the VAT on their invoices. That percentage is the equivalence surcharge (recargo de equivalencia), a special VAT scheme designed to simplify tax compliance for retail traders. In this guide we explain how it works, who it applies to and what obligations it involves, with no beating around the bush.

What the equivalence surcharge is and who must apply it

The equivalence surcharge is a special VAT scheme under which the retailer does not account for VAT on their sales: the tax is already paid in advance by their supplier, included in the surcharge charged to the retailer. This way, the tax authorities collect the VAT at source and avoid handling thousands of returns from small businesses.

It applies, in general, to retailers who are individuals (self-employed) and who sell to the final consumer goods they buy without processing them, or with processing that does not substantially alter their nature. There are several points to bear in mind:

• It is a mandatory scheme when the requirements are met, not an option you can choose at your convenience. You can only opt out in the cases and through the procedure set out in the regulations, by means of the census declaration.

• It does not apply to companies (SL, SA, etc.), co-ownerships and other entities: it is a scheme reserved for individuals.

• Activities expressly excluded by the regulations, such as certain high-value goods or manufacturing activities, fall outside the scheme, so it is worth checking your IAE (business activity tax) heading before taking anything for granted.

• If you also carry out other activities that are not subject to the surcharge, each activity is treated separately, under its own rules.

A typical example: a self-employed person with a clothing shop who buys garments from a wholesaler and sells them in their own store to private customers is, in principle, under the equivalence surcharge.

How your supplier invoices you

The key lies in the purchase invoice. Your supplier charges you two things: the VAT at the rate that applies to the product and, in addition, the equivalence surcharge, which is an additional percentage on the same taxable base. The surcharge percentages depend on the VAT rate applicable to each product and are set by the VAT Act, so always check them against the regulations in force or with your adviser.

Let’s look at an example with round numbers, using the standard 21% rate and a 5.2% surcharge:

• Taxable base: €1,000
• VAT (21%): €210
• Equivalence surcharge (5.2%): €52
• Invoice total: €1,262

That surcharge is a real cost to you: it cannot be recovered. Nor can you deduct the input VAT, because you do not file VAT returns. That is why, when setting your selling prices, you must treat the total cost including VAT and surcharge as your acquisition price. Your supplier, for their part, pays that surcharge to the tax authorities in their own Form 303.

Why you don’t file Form 303 (and what you must do)

Because the VAT on your sales is already covered by the surcharge you paid when buying, a trader under the equivalence surcharge does not charge VAT to their customers: their receipts and invoices show no itemised VAT. Since they neither charge nor deduct VAT, there is nothing to settle, and they do not file Form 303 for this activity, nor the annual summary Form 390.

That does not mean you have no obligations. These are the points that tend to be forgotten:

• Keep all purchase invoices: they are the proof of the VAT and surcharge you bore and of your expenses for personal income tax (IRPF) purposes.

• You still pay IRPF: instalment payments (Form 130, if applicable) and your annual income tax return with the profit from your business.

• Bookkeeping: a record of sales and income and of expenses, depending on your estimation method.

• Transactions outside the scheme: if you buy from EU suppliers or import goods, or provide services, the VAT treatment changes and specific obligations may arise.

Common mistakes: charging VAT to your customers on transactions covered by the scheme, trying to deduct the VAT on your purchases, or not requiring the surcharge from your supplier and later facing a tax reassessment. If your supplier has not charged you the surcharge, review your census situation: your scheme may have been registered incorrectly.

At Zythos Business we help self-employed professionals and SMEs check that their census registration and VAT scheme match the reality of their business, review that purchase invoices are properly drawn up, and make sure their IRPF obligations are met on time. If you are unsure whether your shop should be under the equivalence surcharge, we will review it with you before it becomes a problem.