VAT (IVA) between developer and builder

What is the applicable VAT between developer and builder? The short answer to this question is that the VAT between developer and builder is zero-rated: invoices between developer and builder will be VAT-free due to reverse charge. This means that the developer will have to charge VAT himself and apply any applicable deductions.

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vat between developer and builder

What is the applicable VAT between developer and builder? The short answer to this question is that the VAT between developer and builder is zero-rated: invoices between developer and builder will be VAT-free due to reverse charge. This means that the developer will have to charge VAT himself and apply the corresponding deductions.

As indicated in Article 84.1.2 of the VAT Law, the reversal of the taxable person will occur when the companies that carry out the execution of works make their supplies of goods or services, whether they invoice the developer, the main contractor or subcontractors of the latter.

The following text must appear on the invoice: “Transaction subject to reverse charge”, in accordance with Article 84. 2º f) of the VAT Law” and that the promoter or contractor is requested to state in writing that the execution of the work is:

  • Direct contract of contractor and subcontractor.
  • The purpose of which is the development of land or the construction or renovation of buildings.

The reverse charge applies to suppliers-subcontractors who jointly perform and invoice mixed services (such as construction work and supply of materials) but not to those who solely and exclusively supply materials, rentals, other services such as secondment of workers.

How is the VAT (IVA) reverse charge between developer and builder applied?

The reversal of the taxable person implies that in these cases the taxable person will be the business or professional recipient of the operation. The person who carries out the work will invoice without VAT and the recipient of the operation will self-recharge the VAT, without the need to issue a self-invoice.

It is the recipient of the VAT-exempt invoice who becomes the taxable person, who will self-recharge and deduct (if he is entitled to) the VAT. The issuer of the invoice may, if entitled, continue to deduct VAT on purchases and/or acquisitions of goods and services necessary for the performance of his activity.

You can read our articles on self-promotion and the purchase and sale of real estate in Spain and do not hesitate to contact us with any questions you may have about VAT between developer and builder.

The developer pays the builder 21% VAT on the cost of the construction work when it is carried out in the general case.

However, there is an important exception. The developer pays 10% VAT if it is a home intended for regular use and certain requirements are met.

The VAT rate applied in a construction project depends on what is being built, who commissions it, and for what purpose.

The 10% VAT is applied when:

  1. Homes are being built or rehabilitated (not commercial premises, offices, or warehouses).

  2. The work is carried out by a builder for a developer who:

    • Is an individual who will use the home for personal use, or

    • Is a development company that sells homes to individuals for their regular use.

The 10% VAT also applies to rehabilitation works if certain legal requirements are met.

The 21% VAT is applied when:

  1. Properties other than homes are being built, such as:

    • Commercial premises

    • Offices

    • Industrial warehouses

    • Parking spaces (except for 2 spaces sold with the home)

  2. The requirements for rehabilitation of a home are not met.

  3. The developer is not the one who will use the home for regular use, or it is not intended for residential use (for example, if it is to be rented out as an office or Airbnb)

The 10% VAT in construction can only be applied in specific cases, mainly related to residential properties.

  1. Construction of homes for regular use:

The 10% VAT is applied when:

  • The work is carried out by a construction company.

  • The commission is made by a real estate developer, a cooperative, or an individual.

  • The building is intended for residential use (including garages and annexes, such as storage rooms, if sold together).

  • The homes are intended for regular use, not for vacation rental or office use.

The 10% VAT also applies if sold as the first delivery directly by the developer or builder.

  1. Rehabilitation of homes (meeting requirements):

The work must meet both requirements:

  • More than 50% of the total cost must be allocated to:

    • Structure

    • Facades

    • Roof

    • Other common elements

  • The total cost of the work must exceed 25% of the acquisition price (if recent) or the market value prior to rehabilitation (if acquired some time ago), excluding the land value.
    If these requirements are not met, it is considered a simple renovation and is taxed at 21% VAT.

  1. Delivery of subsidized housing (VPO):
    These also apply to 10% VAT.

  2. Works similar to rehabilitation in private homes:
    For example, comprehensive renovations in a private home commissioned directly by the owner, if it is a primary residence and the owner is not acting as a businessperson.

  • There must be a direct relationship between the builder and the individual (no subcontracting).

  • It does not apply if the owner uses the house as an office or for vacation rental.

The 10% VAT does not apply when:

  • Commercial premises, offices, or warehouses are being built or renovated.

  • The works are for companies or professionals who will use the property for their business (unless rehabilitation requirements are met and it is intended for residential use).

Decorative or maintenance works are done, without meeting rehabilitation requirements

The developer is the company responsible for the management, financing, and organization of the real estate project, from the purchase of the land to the sale or rental of the property. Its main role is to plan, obtain the necessary permits, manage the administrative procedures, and coordinate the development of the project, although it does not carry out the actual construction.

On the other hand, the builder is the company responsible for the physical execution of the work, that is, for constructing the building or infrastructure according to the project established by the developer. It handles the construction itself, hiring the workforce, supervising the building process, and ensuring that deadlines and budgets are met.

In summary, the developer manages the entire project process, while the builder is responsible for the physical construction.

The 10% VAT can be applied to homeowners’ associations only in certain specific cases related to works on homes, and provided that a series of requirements are met.

The 10% VAT applies to homeowners’ associations when:

  1. Renovation or repair works are carried out on the residential building.
  2. The association acts as the final consumer (i.e., it is not a business or professional).
  3. At least 50% of the building is intended for private homes (habitual use or second residence).
  4. The company performing the work does not provide materials for more than 40% of the total project cost.
  5. If the materials provided by the builder exceed that 40%, the 21% VAT applies.

The 10% VAT does not apply if:

  • More than 50% of the building is intended for offices, commercial premises, garages, etc.
  • The association rents the properties for business or professional activities.
  • The work is for expansion, new construction, or transformation, not simple renovation or repair.
  • The builder subcontracts another company that actually performs the work (except for certain exceptions).
  • The material limits are exceeded (more than 40% of the total).

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