Costs Involved in the Purchase of a New Property: V.A.T.

VAT (Value Added Tax – “IVA” in Spanish) covers the entire construction process of a property, from the moment it is contract to the moment it is completed. The land, the construction works, its completion and the first delivery made by the developer are all subject to this tax.

Therefore, this tax is only applicable when a newly-constructed property is purchased from a developer. Subsequent sales of the property are exempt from this tax but are subject to another type of taxation, Property Transfer Tax (“Impuesto de Transmisiones Patrimoniales” in Spanish).

In Spain, VAT currently stands at 7% for freehold property, garages and annexes. The 7% is only applied to garages and annexes (basements, attics, storerooms) that are located in the same building as the property in question provided that they are purchased at the same time, on the same date and before the same notary. It should be mentioned that the number of garage spaces that can be subject to the 7% rate of VAT is limited to two.

For this reason, it is fundamental that the transfer of the garage and the annexes is done during the same act and on the same date. It does not matter whether this transfer is reflected in the same or a different private document or public deed.

The VAT is paid to the developer at the same time as the price of the sale.