Recovering VAT (IVA) on irrecoverable debts

Owing to the fragile economic, financial and asset status of the various economic operators and the almost daily news of their debtors’ declarations of insolvency, creditors who have lost all hope of recovering the amount due to them (at least in its entirety and in the short-term), may recoup the unpaid VAT. In these cases, the law confers on the creditor a right to deduct the VAT charged on sums which are deemed irrecoverable, once certain requirements have been fulfilled.

Thus, under Article 78(7)(a) of the VAT Code (CIVA), the tax on irrecoverable debts which have been the subject of enforcement proceedings may be recovered, provided that the following requirements have been met:

a)   the enforcement proceedings must be declared to have expired on account of there being no seizable assets; and

b)   the expiry of the proceedings must be registered on the Computerised Enforcements Register (RIE).

As from the moment in which the closure of the proceedings is registered with the RIE without the debt having been paid, the creditor is allowed to deduct the VAT on the outstanding invoices.

As to irrecoverable debts in insolvency proceedings, and as provided in Article 78(7)(b) of the CIVA, the tax must be regularised on the basis of a Court-issued certificate declaring the insolvency, specifying whether or not the decision has become final, and certifying the amount for which the taxpayer claimed to be a creditor.

Therefore, if creditors wish to recover the VAT charged on the amounts owed by a company that has been declared insolvent, they will have to comply with the following requirements:

a)  request a certificate certifying the insolvency decision from the Court;

b) provide proof that they claimed the outstanding amounts and that their claim was acknowledged.

 In relation to irrecoverable debts in Extrajudicial Conciliation Proceedings, that is to say, in proceedings where IAPMEI acts as mediator with a view to obtaining an agreement that will allow for a partial and/or staged payment of the debt, the creditor may also, under Article 78(7)(c) of the CIVA, regularise the tax if the debt has been pardoned and must inform the debtor to this end in order for the latter to rectify the previously made deductions.

Finally, Article 78(8) of the CIVA provides for the possibility of regularising the VAT on the remaining amounts owing, provided that one of the following conditions has been met:

a) Debts of under €750.00 (VAT included)[1]

– When the delay continues for six months.

b) Debts of between €750.00 and €8.000.00 (VAT included)[2]

– When i) the debtor is registered onthe computerised enforcements register as a debtor against whom enforcement proceedings were filed which have in the meantime been suspended or have expired as no seizable goods were detected; or ii) an enforcement order has been joined in injunction proceedings or the debt has
been acknowledged in an action for payment.

c) Debts of less than €6,000.00 (VAT included)[3]

 – When i) the debt has been acknowledged in an action for payment; or ii) claimed in enforcement proceedings and the debtor has been served by means of announcement.

d)  Debt of between 750.00 and €8,000.00 (VAT included)[4]

 – When the debtor is on the public access list of enforcements which have expired
because of partial payment or because no seizable assets have been detected at
the time of deduction.

In these cases, the overall total of the amounts owing, the total amount of tax to be deducted, the implementation of collection measures by the creditor, and the failure of such measures, must be supported by documentary evidence and be certified by a chartered account. These will then become part of the tax documentation.

It should be noted that the time limit for regularising VAT affairs with regard to irrecoverable debts is four years i) from the date of registration of the expiry of the enforcement (in enforcement proceedings), ii) from the date of publication of the insolvency decision (in insolvency proceedings) and iii) from the time in which the requirements for deducting the VAT have been met (for all other debts).

It is, however, essential that the debtor be informed of the procedure to regularise the tax in cases where the debtor himself is also liable to VAT.

Finally, in the event that the debts in respect of which the VAT was regularised are subsequently paid, the taxpayer is obliged to pass on the corresponding tax in the period in which it was received.

Eliana Varalonga


[1] When the debtor is a private individual or taxpayer who conducts
exempt transactions which confer no right of deduction.

[2] When the debtor is a private individual or taxpayer who conducts
only exempt transactions which confer no right of deduction.

[3] When the debtor is a taxpayer with a right of deduction.

[4] In the case of a private individual or taxpayer who conducts only exempt
transactions which confer no right of deduction.