The economic activity of buying and selling scrap metal is not exempt from paying VAT, as there is no legal provision that exempts this activity from paying VAT. In this article we explain why and how to pay VAT on the sale of scrap metal.
What is reverse charge?
Reverse charge is a form of VAT whereby the person liable for the tax is the recipient of the invoice, and not the issuer, as is the general rule for value added tax.
In general, the person liable for VAT is the trader or entrepreneur who issues an invoice for the supply of services or the sale of goods. On this invoice, the trader or entrepreneur passes on the VAT to his customer and then pays it on the corresponding income tax return.
However, in this case, the inversion of the taxable person, the general rule is modified, and in this case it is the recipient of the invoice who is obliged to pay VAT.
How to pay VAT on the sale of scrap metal?
In Spain, Article 84 of Law 37/1992 of 28 December 1992 on Value Added Tax establishes the cases in which the reverse charge occurs:
- Supplies of new industrial waste, foundry waste and scrap, residues and other recovered materials consisting of ferrous and non-ferrous metals, their alloys, slag, ash and industrial waste containing metals or their alloys.
- The sorting, cutting, crushing, shredding, shredding and pressing operations carried out on the products referred to in the previous point.
- Deliveries of waste or scrap of glass, paper and cardboard.
- Deliveries of semi-finished products resulting from the processing, working or melting down of the non-ferrous metals referred to in point 1, with the exception of nickel compounds. In particular, semi-finished products are considered to be ingots, blocks, slabs, plates, bars, grains, shot and wire rod.
In this case, the seller issues an invoice without VAT to the buyer. The buyer, on the other hand, will have to issue a self-invoice applying VAT. As in this invoice both parties are the same company, the invoice must record both output VAT and input VAT for the same amount.
As the same legal entity invoices and bears the VAT on the transfer of the scrap and semi-finished products, the movement of money is eliminated, but for the tax authorities the movement is duly reported.
This exception to the general rule applies to the following cases:
- 7204: Waste and scrap from iron or steel foundries (scrap and ingots).
- 7402: unrefined copper, copper anodes for electrolytic refining.
- 7403: Refined copper in the form of cathodes and cathode sections.
- 7404: Copper waste and scrap.
- 7407: Copper bars, rods and profiles.
- 7408.11.00: Refined copper wire with a maximum cross-section of 6 mm or more.
- 7408.19.10: Refined copper wire of which the maximum cross-sectional dimension exceeds 0.5 mm but does not exceed 6 mm.
- 7502: Nickel.
- 7503: Nickel waste and scrap.
- 7601: Unwrought aluminium.
- 7602: Aluminium waste and scrap.
- 7605.11: Aluminum wire, not alloyed.
- 7605.21: Aluminium alloy wire.
- 7801: Lead.
- 7802: Lead waste and scrap.
- 7901: Zinc.
- 7902: Zinc waste and scrap.
- 8001: Tin.
- 8002: Tin waste and scrap.
- 2618: Granulated slag (slag sand) from the manufacture of iron and steel.
- 2619: Slag, dross, scalings, scalings and other waste from the manufacture of iron and steel.
- 2620: Ashes and residues (other than from the manufacture of iron and steel) containing metals or metal compounds.
- 47.07: Waste and scrap of paper or paperboard.
- 70.01: Glass waste and scrap.
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