Client disbursements on a Spanish lawyer's invoice: when they carry no VAT and what Article 78 of the VAT Act requires

Court fees, registry charges, court agent (procurador) fees, expert reports. In daily practice, Spanish lawyers frequently advance money for their clients and later pass it on in the invoice. Treating those amounts correctly is no minor detail: if they qualify as suplidos (client disbursements) under the VAT Act, they fall outside the tax base; if not, the Tax Agency may treat them as consideration and charge 21% on them.

The reference rule is Article 78.tres.3 of Law 37/1992 on Value Added Tax, which excludes from the taxable base "the sums paid in the name and on behalf of the client by virtue of the client's express mandate".

The three requirements in Article 78 itself

The provision does not merely state the exclusion: it imposes three conditions that practice has turned into the checklist for any disbursement:

1. Express client mandate. The payment must be made in the client's name and on their behalf, not the lawyer's. The professional engagement must back that condition; the engagement letter plays a relevant evidentiary role here.
2. Proof of the actual amount. The text obliges the professional to justify the effective amount of the expenses. In practice: keep and be able to produce the third party's original receipt or invoice (fee, registry, expert) in the client's name or proving that condition.
3. No deduction of input VAT. The article adds that the taxable person may not deduct the tax that may have been charged on those expenses. If the lawyer deducts the VAT on the expert's invoice, the expense stops being a disbursement and becomes an own cost that is then passed on with VAT.

A disbursement is not a retainer advance

The most common confusion is with the provisión de fondos (advance on account). As Iberley explains in its analysis of the taxation of lawyers' and court agents' fees, for tax purposes a distinction must be drawn between the strict advance, which is an advance on the professional's fees, and the disbursement, which is the advance of expenses the professional will pay in the client's name and on their behalf.

The difference has a direct consequence: the advance on fees is consideration (VAT accrues when received), while the well-documented disbursement stays outside the base. A generic advance "for expenses" with no further precision is grey ground best avoided, identifying from the outset which part corresponds to fees and which to specific outlays in the client's name.

How to reflect it on the invoice

In practice, the standard recommendation is to separate concepts: fees on one side (with their 21% VAT and, where applicable, the income tax withholding) and disbursements on the other, identified one by one, without VAT and with reference to the corresponding receipt. On withholding, Iberley recalls that professional income is generally withheld at 15%, or 7% in the starting period and the two following ones, and that not all clients are obliged to withhold (private individuals, as a general rule, are not).

We develop the mandatory invoice data in the guide on the content of a Spanish lawyer's invoice under the Invoicing Regulation, and the quarterly settlement in the guide on VAT for self-employed lawyers and Form 303.

The special case of the court-appointed duty scheme

Services provided under the legal aid scheme have their own regime: since 1 January 2017 they are not subject to VAT, because the compensation received by duty-scheme professionals has an indemnity nature, as recognised by Law 1/1996 following the reform by Law 2/2017. In other words, for those services there is no tax to charge at all.

The common thread: custody of other people's money

Both disbursements and advances connect with a greater deontological and organisational obligation: the client's money is not the firm's money. Its orderly custody runs through the separate account for client funds, whose regulation we analyse in another guide in this section.

More tax resources for solo practice in the Solo practitioners section.