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VAT 2023 practical manual.

Real-estate exemptions

The following operations are exempt:

  • The delivery of rustic land and other land that is not considered buildable and that is intended exclusively for public parks and gardens or public road surfaces.

  • Second and subsequent deliveries of buildings, including the land on which they are located, when they take place after their construction or rehabilitation has been completed.

    Building rehabilitation concept:

    Building rehabilitation works will be considered those that meet the following requirements:

    1. That its main objective is the reconstruction of the same, understanding that this requirement is met when more than 50 percent of the total cost of the rehabilitation project corresponds to works of consolidation or treatment of structural elements, facades or roofs or with works similar or related to rehabilitation.

    2. That the total cost of the works to which the project refers exceeds 25 percent of one of the following amounts:

      • From the purchase price, if the building had been acquired during the two years immediately prior to the start of the rehabilitation works.

      • From the market value of the building or part of it at the time of the start of the rehabilitation works, if said start takes place after 2 years have passed since the acquisition of the building.

      In both cases, the proportional part corresponding to the land will be deducted from the purchase price or market value of the building.

The following works will be considered similar to rehabilitation works:

  1. Those of structural adaptation that provide the building with conditions of constructive safety, so that its stability and mechanical resistance are guaranteed.

  2. Those for reinforcing or adapting the foundation, as well as those that affect or consist of the treatment of pillars or floors.

  3. Those for the expansion of the constructed surface, above and below ground level.

  4. Those of reconstruction of facades and interior patios.

  5. The installation of lifting elements, including those intended to overcome architectural barriers for use by disabled people.

Works related to rehabilitation will be considered

Those listed below when their total cost is lower than that derived from the works of consolidation or treatment of structural elements, facades or roofs and, where appropriate, from works similar to these, provided that they are linked to them in an inseparable manner and do not consist of the mere finishing or decoration of the building or in the simple maintenance or painting of the facade:

  1. The works of masonry, plumbing and carpentry.
  2. Those aimed at improving and adapting enclosures, electrical installations, water and air conditioning, and fire protection.
  3. The works of energetic rehabilitation.

The following will be considered energy rehabilitation works:

Those aimed at improving the energy performance of buildings by reducing their energy demand, increasing the performance of thermal systems and installations or incorporating equipment that uses renewable energy sources.

For the purposes of VATfollowing are considered first deliveries:

Deliveries by the developer of buildings whose construction or rehabilitation is completed, unless they have been used for a period equal to or greater than 2 years and are acquired by a person other than the person who used them during said period.

The exemption does not apply to deliveries made by financial leasing companies in the exercise of the purchase option inherent to these contracts, provided that they have a minimum duration of 10 years, nor to deliveries for immediate rehabilitation or demolition and subsequent promotion.

Example:

A developer has built a building for the following purpose:

  • The ground floor has been used as company offices since January of year “n”
  • The first one has been rented to Mrs. A since February of year “n”
  • The second one has been rented to Mr. B since October of year “n”
  • The third one has been rented to Mr. C since January of year “n”
  • The room is unoccupied.

He sells the entire building to Mrs. A in September of year “n + 2”. The following deliveries are made:

  1. Subject to and not exempt for being first deliveries:

    • The acquisition of the first flat which Mrs A herself had rented, regardless of the period of use.

    • The acquisition of the second floor which has been rented to Mr. B for a period of less than 2 years.

    • The acquisition of the fourth floor that has been unoccupied.

  2. The following will be exempt since they are second deliveries:

    • The premises occupied by the developer for a period of more than 2 years.
    • The third rented to Mr. C for a period of more than 2 years.

  • Leases and the creation and transfer of real rights of enjoyment and use, which have the following assets as their object:

    1. Land, including agricultural real estate buildings used for the exploitation of a rural property.

      Example:

      The transfer of a rural property to a commercial company for the purpose of extracting marble is not exempt, since the purpose of the operation is the transfer of a right to extract marble and acquire its ownership and not the simple transfer of use of the land.

    2. Buildings or parts thereof intended exclusively for housing or for subsequent leasing by entities managing public housing support programs or entities under the special regime of Entities dedicated to leasing housing, including garages and accessory annexes and furniture, leased jointly with those.

      Example:

      The rental of a home by a company is not exempt from tax because it is not used exclusively for housing, as the lessee is a legal entity, regardless of whether the company uses it, sublets it, or transfers it to its employees as partial compensation for their work.

The exemption does not include, among other cases, the leasing of land for vehicle parking, for the storage or deposit of goods, for exhibitions or for advertising, nor the creation or transfer of real property rights.

The following exemptions may be waived by the taxpayer:

  1. Deliveries of non-building land.

  2. Second and subsequent deliveries of buildings.

The waiver of the exemption only applies if the purchaser:

  1. Be a passive subject acting in the exercise of his business or professional activities.

  2. You have the right to a full or partial deduction of the tax incurred when making the acquisition or, when the above is not met, depending on their foreseeable destination, the acquired goods will be used, in whole or in part, in carrying out operations that give rise to the right to the deduction.