When does VAT apply to property in Spain?
VAT applies to new-build properties bought directly from a developer. The standard rate is 10% for residential properties, but 21% applies to commercial property and building land. This is an important factor to consider when buying property in Spain.
Social housing falls under a reduced rate of 4%, which can be advantageous for buyers who fall within the terms of subsidised housing. In addition, not only homes are subject to VAT: construction and renovation work, estate agency services and other property-related costs are also subject to the 21% VAT rate. This means that when planning a purchase, these additional costs should also be included in the budget.
When do you pay ITP instead of VAT?
When you buy a second-hand property, you do not pay VAT but ITP. This is a regional transfer tax and the rate varies by autonomous region in Spain. In most areas, it is between 6% and 10% of the purchase price. This can make a significant difference in the overall cost of a property transaction.
ITP is also applicable when buying agricultural land and some specific transactions between individuals. The tax must be paid within 30 days of the transfer. It is therefore essential when buying a second-hand property to find out well in advance what rate applies in the relevant region so that there are no surprises.
Which tax applies to your situation?
When buying property in Spain, it is important to know exactly which tax applies to your situation. Are you buying a new build property from a property developer? Then you will pay 10% VAT. Is it a second-hand property from a private individual? Then the transaction falls under ITP, where you have to take regional rates into account.
Commercial property and building land are taxed at 21% VAT by default. This can be an important consideration when investing in commercial property or land for property development. If you purchase property through a company and rent it out for the short term, there is sometimes the possibility of reclaiming the VAT paid. However, this requires careful administration and compliance with VAT rules.
Royal Estates helps you take advantage of tax benefits
Buying a property in Spain is an important step and the tax aspect should not be overlooked. At Royal Estates, we guide our clients through the entire purchase process and make sure you don’t encounter any unexpected tax charges. Our experts can help you calculate the total cost, including VAT or ITP, so you can make an informed decision.
Are you entitled to a VAT refund? We will advise you on the possibilities and make sure you take the right steps to take advantage of tax benefits. Good preparation and knowledge of Spanish tax rules can save you a lot of money in the long run. Royal Estates is at your service with professional advice and tailored guidance.
Conclusion
Choosing between VAT and ITP depends on the type of property and the seller. New build properties are subject to VAT, while second-hand properties are subject to ITP. It is also important to consider additional costs such as notary fees and possible VAT on services. Royal Estates helps buyers of property in Spain understand the tax obligations and possible benefits. Want to know which taxes apply to your purchase? Contact us and we will guide you through the process step by step!
