In today’s article we are going to talk about the taxes on a plot purchase. As it is possible that VAT or Transfer Tax could be paid. Depending on several issues.
The condition of the seller
1. When the seller of the land is a natural person, not a business person (not a VAT taxable person), Transfer Tax will be paid normally. Being in the Valencian Community 10 per cent.
2. On the contrary, VAT will be paid, when the seller is a VAT taxable person, that is, a company or business person.
In this sense, the person who has carried out urbanisation works, will be considered a business person. If he has the intention to sell the land. It is understood that it will be considered like that, from the moment that he pays urbanisation costs.
The VAT rate on the sale of plot of land is 21 per cent.
In some cases, a company could not be considered a professional for VAT purposes. For example, if it has no activity, if the land was acquired without the intention of being part of its economic activity, etc.
What taxes should be paid when buying and selling land?
Depending on the circumstances, it may be more interesting to pay VAT or Transfer Tax.
Thus, if the buyer is a company or business person, they could be interested in paying VAT. Because they can deduct and compensate it.
If the buyer is an individual, who wants the land just for his personal use. Normally, he will be interested in paying Transfer Tax. And pay 10 per cent instead of 21 per cent VAT.
Possibility of not paying VAT on some land sales from companies / professionals
But, in some cases, although these sales, in principle are subject to VAT, it is possible to request its exemption.
Thus, says article 20-20 of the VAT Law. Thus, they are exempt from VAT:
– Transfer of rustic land and others that do not have the building condition …
The exemption does not extend to the following land, even if they have not the building condition:
a) Urbanised land or in the course of urbanisation.
b) Those of land on which are buildings built or under construction; when they are transmitted together; and the said buildings are subject to VAT …
Examples of land sales from professionals or companies
Thus, as indicated:
1. They are exempt from VAT, in principle the sale of rustic land. And those lands in which the urbanisation process has not started. In these sales, the tax to be paid will be Transfer Tax.
2. They are NOT exempt, and must pay VAT: the sale of land in which the development or urbanisation process has started, or finished.
If you are going to buy a plot in Spain, you should be aware about the taxes on a plot purchase. And depending on your case, you may be interested in paying VAT or Transfer tax. But, it will depend on the seller and his condition, the type of land, etc.
The information provided in this article is not intended to be legal advice, it merely conveys information related to legal issues.
Carlos Baos (Lawyer)
White & Baos.
Tel: +34 966 426 185
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