Understanding VAT in Spain for Construction and Renovation Projects
When it comes to construction or renovation work in Spain, understanding the applicable Value Added Tax (VAT) rate is essential for both professionals and individuals involved in real estate, development, or property improvement. Whether you are a property developer, contractor, landlord, or private homeowner, VAT can significantly affect the overall cost of a project and the way services should be contracted and invoiced.
Spanish VAT legislation distinguishes between various types of work — such as new constructions, rehabilitations, and mere renovations — and applies different VAT rates accordingly. Misunderstanding the applicable VAT rate can lead to incorrect pricing, regulatory non-compliance, or even tax penalties. This is especially important in residential property projects, where the correct application of the reduced 10% VAT rate versus the standard 21% rate can make a substantial financial difference.
This article summarizes the key criteria for determining the correct VAT rate based on the type of work carried out in residential properties, according to official guidance from the Spanish Tax Agency (Agencia Tributaria).
1. Construction and Rehabilitation Works – Reduced VAT (10%)
The reduced VAT rate of 10% applies to the following operations:
- Construction or rehabilitation works on buildings intended primarily for residential use, including annexes such as garages and storage rooms, provided the contract is directly signed between the developer and the contractor. This reduced rate does not apply to subcontracted work.
- Supply and installation of fitted kitchens, bathroom furniture, or built-in wardrobes as part of a residential construction or rehabilitation project, when contracted directly between the developer and the main contractor.
- Construction of garages carried out by a homeowners' association in buildings mainly used for housing. This only applies if the garage is built on shared property and each owner is assigned no more than two spaces.
- ⚠️ Important: The standard VAT rate of 21% always applies when materials like doors, windows, or furniture are sold without installation. These are not considered construction services.
- House extensions qualify as construction work (and therefore benefit from the 10% VAT rate) only if they increase the habitable area. Mere interior renovations do not qualify as construction.
2. Rehabilitation Works – Conditions for 10% VAT
To qualify as a rehabilitation (subject to the 10% VAT rate), two requirements must be met:
1. Structural and Technical Relevance
More than 50% of the total cost must relate to:
- Consolidation or treatment of structural elements (e.g., pillars, beams),
- Facades or roofs, or
- Other analogous or connected works, such as:
- Consolidation or treatment of structural elements (e.g., pillars, beams),
- Structural reinforcement
- Foundation work
- Vertical or horizontal extensions
- Facade reconstruction
- Elevator installation, including accessibility features
2. Value Threshold
The total cost of the works must exceed 25% of:
- The purchase price of the property (if bought within two years before the works), or
- The market value of the property prior to rehabilitation, excluding the value of the land.
Professionals must be able to document the nature of the works, using architectural reports, professional certifications, or project approvals by professional associations.
3. Connected and Analogous Works
Works considered analogous to rehabilitation (if structurally relevant) include:
- Structural adequacy for safety and stability
- Extension of floor area (above or below ground)
- Facade or patio reconstruction
- Installation of elevators and accessibility systems
Connected works are those inseparably linked to the above, as long as:
- Their cost is less than that of the main structural works
- They are not purely decorative or maintenance tasks
Examples:
- Masonry, plumbing, and carpentry
- Upgrades to windows, plumbing, electricity, HVAC systems, fire protection
- Energy rehabilitation works, such as thermal efficiency improvements or renewable energy installation
4. Renovation or Repair Works – Standard vs. Reduced VAT
As a general rule, renovation and repair services are taxed at the general VAT rate of 21%. However, the reduced 10% rate can be applied when all of the following are met:
- The client is an individual (not a business or professional) using the home for private residence only.
- The building was completed at least two years before the start of the renovation.
- The contractor does not supply materials exceeding 40% of the taxable value of the work.
Example:
- A renovation costs €10,000, with €3,000 in materials: qualifies for 10% VAT.
- If materials cost €5,000 (50%): taxed at 21%.
Useful Tool: Spanish VAT Real Estate Calculator
The Spanish Tax Agency offers a virtual VAT assistance tool (“Calificador Inmobiliario”) to help determine the correct VAT rate: 🔗 Click here to access the tool
If you are a property owner, investor, or contractor dealing with works on residential properties in Spain, applying the correct VAT rate is not only a financial matter but a legal obligation. At Strong Abogados, we provide expert VAT compliance support for national and international clients in the real estate sector. Contact us for tailored advice on construction projects and tax optimization strategies.