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Is VAT applicable when purchasing or renting a property in Spain?

If you are interested in buying or renting a property and you find yourself concerned about how much tax you will have to pay or wondering whether you even have to pay it, please be sure to read the following article. Not only will it answer the abovementioned questions, but with the following guide you could potentially save money and make sure that with every step that you go forward, you do so in accordance with the law.

Find out when VAT is charged in real estate operations, how to avoid it and which formal obligations you must fulfill.

Deduct VAT from the purchase

The purchase of a new home, or a home that has never been previously occupied, is subject to VAT at the current rate of 10%, except for officially protected dwellings (VPOs), which are taxed at 4%. The Tax Office determines that the “first purchase” of housing occurs when one buys directly from the developer when the construction is completed. The purchase of used housing (re-sale of property) is subject to Property Transfer Tax (PTT), because it is exempt from VAT.

  • Tipp-, If you are a businessman and are going to acquire a property (used or not) for your business activity, it is better for you be taxed under VAT. How? – By waiving the exemption from VAT, so that you can deduct the VAT paid on the purchase from that which is paid for your business activity. Imagine that you are purchasing two garage parking spaces for 15,000 euros that belong to a company, with the intention of renting them out in the future. If you were not to give up this exemption, the purchaser or the lessee will have to pay Transfer Tax of 1.200 euros if he or she is in Andalusia (Prices vary across different regions). In the scenario where the exemption is not given up, a total of 3.150 (21%) euros VAT must be paid, which could be deducted from the business-derived VAT, thus saving the businessman this expense.
  • An individual who is not a businessman cannot waive VAT, and must pay the Transfer Tax.

How the waiver is made:

The waiver is made by the seller and, in order for it to be valid, there are certain requirements. Should you wish to know more about these, please contact us directly and we would be more than happy to answer any of your queries on this matter.

VAT on Rented Property

For VAT purposes, lessors of property are considered businessmen or professionals. The activity of leasing a property is subject to VAT, but there is an exemption in certain cases. The following are the most common:

  • Rental of premises: this involves the payment of 21% VAT.
  • Renting property to a company: this involves the payment of 21% VAT, because the lessee (the company) rents it for a business purpose and not for accomodation.
  • Rental property for housing: This is exempt from VAT (including garage and storage).
  • If the lessee uses the property or part of it for any use other than housing, VAT of 21% will be applicable. For example, an apartment which is rented as an office or if a portion is used for accommodation and another for professional office use.

Lexland Lawyers has a team of experts in this field who would be happy to advise you, ensuring that your commercial or private operations are carried out in the most tax efficient manner.

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