CLIENTS often ask me when VAT (el impuesto de valor añadido or IVA, in Spanish) is due on the purchase of building land in Spain.
This is especially important for those acting as developers because, in some cases, the VAT paid when purchasing land can be offset during the building process (the subject of next month’s article).
But it is also relevant to those who are liable for transfer tax, a significantly lower fiscal burden than VAT.
To make sure I provide the best possible answer to the next client who asks me, I talked to a lawyer – Adolfo Martos Gross, a partner in Costa del Sol law firm GAM Abogados – and put the very same question to him.
In the case of a building plot that is classified as urban land – the only type you can legally build on in Spain – Adolfo says VAT is levied, in addition to the sale price, when the seller is a Spanish company or professional who is acting within the scope of their business activities.
If this is not the case, urban land sales are not subject to VAT, but to transfer tax (el impuesto de transmisiones patrimoniales onerosas, ITPO).
When the seller is a Spanish business or professional, VAT is levied at a flat rate of 21% on top of the sale price. But that’s not all, Adolfo notes. Another tax is also due – stamp duty (actos jurídicos documentados, AJD) – charged at an additional 1.5%. Which makes a whopping 22.5% extra, in total.
Whereas, Adolfo explains, when the seller is a private individual who is a tax resident in Spain, ITPO is levied on a sliding scale in accordance with the sale price: 8% up to 400,000€, 9% from 400,000.01 to 700,000€, and 10% over 700,000.01€. Joint owners, Adolfo adds, can benefit from a discount because, while the same rates apply, the taxable base of the sale price is calculated in proportion to their ownership share.
Let’s look at a few examples:
- Antonio García (the most common boy’s name in Spain in 2014) owns a building plot (which he may have inherited or have bought to build his own house at a later date) and which he wants to sell. Because he is a private individual, not a company or professional, and did not buy the land to develop for business purposes or to sell for a profit, he cannot charge VAT and AJD. The buyer will have to pay ITPO.
- María del Carmen García (Antonio’s sister and the most common Spanish girl’s name) is a property professional, who is registered as such, pays her taxes, has an office, and sells property on a regular basis. She buys a building plot, which she wants to sell for profit. The buyer will have to pay VAT and AJD.
- John Smith is in the same position as Mari Carmen García. He’s a property developer, who should also, by law, charge VAT and AJD. But, Adolfo says, the Andalusian regional government (Junta de Andalucía) may not believe John is what he says. As a result, the Junta may try to apply ITPO instead and John will have to prove his professional status to the Junta’s satisfaction. In either case, the buyer has to pay the respective taxes.
- Venta de Parcelas y Propiedades, S.L. is, as it’s name suggests, a Spanish limited liability company that sells building plots and property. It is registered as such, pays taxes, has an office, and has a track record of selling both. On land sales, it has to charge VAT and AJD, which the buyer has to pay.
What matters, Adolfo points out, in all of these scenarios is the status of the seller, not the buyer. Whether the buyer is a company or an individual makes no difference.
The seller is responsible for determining which type of tax – VAT and AJD, or ITPO – must be charged. If the buyer does not agree, the case may be reviewed by the tax authorities.
But the buyer is always liable for payment, whatever tax is due.