How to Improve Your Cash Flow by Requesting Monthly VAT Refunds

In many businesses—especially those with significant investments or operations where input VAT exceeds output VAT—the resulting credit balance with the Tax Agency can become a “frozen tax asset” for months.
To prevent this situation, there is a very useful mechanism: the Monthly VAT Refund Regime (REDEME).

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1. The Problem: VAT as a Liquidity Burden

VAT is a neutral tax: what the company pays on purchases is offset against what it charges on sales.
However, in practice:

- If you pay more VAT than you collect, you accumulate a refundable balance.
- If you are not under the monthly refund system, you can only recover it when filing form 390, the annual VAT return.
- This means you’re financing the Tax Agency for months, creating cash flow stress.

💡 For businesses with heavy investment or export activity, this delay can mean thousands of euros locked up each quarter.

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2. The Solution: Monthly VAT Refunds

The REDEME allows companies to request refunds of VAT credit balances every month, instead of waiting until year-end.

- It is requested using form 036 or 039 (as applicable).
- It requires registration in the Monthly VAT Refund Register.
- It obliges you to file monthly VAT returns (form 303).
- You must be enrolled in the Immediate Supply of Information (SII) system if your turnover exceeds the legal threshold.

📆 This enables businesses to recover VAT from purchases or investments sooner, improving cash flow on a monthly basis.

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3. Cash Flow Benefits

Joining the REDEME program creates an immediate improvement in business liquidity:

- You recover VAT from investments (machinery, property, technology) earlier.
- You benefit if your business is export-oriented, where sales are VAT-exempt but input VAT remains high.
- You prevent credit balances from being frozen for months.
- You increase your reinvestment capacity and reduce dependence on external financing.

📈 For companies with high investment or export volumes, the impact on cash flow can be highly significant.

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4. Practical Example

A company invests €200,000 in machinery in March, paying €42,000 in VAT.

Without monthly refunds:

- That VAT will only be recovered with the annual VAT return, remaining frozen for months.

With monthly refunds:

- The company can request the €42,000 refund in April, immediately improving its cash flow and allowing those funds to be used for working capital or new investments.

💰 Result: the company enhances liquidity and reduces reliance on bank financing.

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5. Requirements and Considerations

To qualify for the REDEME, a company must meet the following requirements:

- Be up to date with all tax obligations.
- Remain registered in the REDEME for at least one full calendar year.
- File all VAT returns on time and comply with the SII, if applicable.
- Maintain strict documentation control, as the Spanish Tax Agency (AEAT) may review refund claims.

⚠️ Any noncompliance may result in exclusion from the regime or delays in refunds.

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6. Conclusion

The Monthly VAT Refund Regime (REDEME) is an essential tool for companies with capital-intensive or export-driven operations, as it prevents liquidity from being tied up with the Tax Agency.

Applying for it can be an effective strategy to improve cash flow, accelerate refunds, and gain financial flexibility.

🚀 In short, REDEME turns VAT from a cash-flow burden into a recurrent source of liquidity for your business.