We recently gained a contract to provide quality handbags to boutiques in Spain. The handbags are purchased from Italy and either directly delivered from the manufactures or from a small stock held in Spain at a distribution warehouse. Do we need to register in Spain? 

In these circumstances you have two separate movements for VAT purpose, where goods are delivered directly this is a triangulation movement. Where goods are held as consignment stock in Spain the place of supply is Spain as that is where the goods are located, you may need to register for VAT there.

Triangulation is a simplification procedure that can be used to avoid multiple territory VAT registrations. It can be used when three parties, each located in separate EC country, are involved in a goods transaction and are registered for local VAT in their respective countries.

In your scenario you sell goods to your business customers in Spain, however the goods are sent from the Italian manufacturer direct to the Spanish business customer.
There is only one movement of goods, ie, from Italy to Spain , but two supplies for invoicing purposes.

The first invoice in the triangulation will be to from the Italian company to your UK business. Since both companies are in business and in the EC, the invoice from the Italian company will be zero-rated on the receipt of your UK VAT number.

The second invoice in the chain will be your invoice to the Spanish  customer. This invoice can be zero-rated on receipt of the Spanish customer’s local VAT number. The invoice should bear a legend advising that it forms the intermediary leg in a triangular transaction, and that the simplification applies.

The Spanish customer will be then able to self-account for VAT on the acquisition, rather than the UK business having to VAT register there.

Both you and the Italian company will be required to submit EC Sales Lists.

Consignment stocks are goods that a business transfers between EU countries in order to meet future orders.The important feature is that the movement of the goods occurs before a customer has been found for them. Consignment stocks are treated as a transfer of own goods for VAT accounting and reporting purposes. Subject to the registration turnover thresholds normally anyone moving stocks to another EU country will need to register there in order to account for VAT on the acquisition of the goods and on the subsequent supply there. But, as an alternative to registering for VAT you may opt to use the services of a local VAT-registered agent. In that case the goods may be treated as supplied to and acquired by the agent and supplied on by them when a customer is eventually found. The owner will be able to zero-rate their supply to the agent from their own Member State by quoting the agent’s UK VAT number.