Value Added Tax or Asset Transfer Tax on the purchase of a residence

The concept of First Delivery of a Residence (New Homes)

"First delivery" is understood to refer to residences that are acquired from the developer when construction or rehabilitation is completed, except if the residences have been used continuously for a period equal to or greater than two years by people who are not the acquirers.

That is to say, once construction is complete, if the property developer rents the residences and after two years puts them up for sale, if the residences are acquired by the renters then the delivery of the residences shall be a "first delivery". This shall not be the case if the residences are acquired by other persons.

Construction works on a home shall be considered to be complete when a works completion certificate is issued by the architect and the surveyor managing the project.

  • First deliveries of residences (new residences) are subject to Value Added Tax (VAT).
  • Second and subsequent deliveries of residences (used residences) are subject to Property Transfer Tax (As Taxable Asset Transfers)(PTT).

The concept of a Residence and the Rate of Value Added Tax Applicable to Purchases and Hire Purchases

The Taxation General Directorate traditionally defines a residence as a "building or part of a building used as the habitation or dwelling of an individual or of a family, comprising the home or main base of the home life of the family or individual".

Law 37/1992 of 28th December on Value Added Tax does not expressly define what is to be understood as a residence for the purposes of Value Added Tax; however, when setting their delivery tax rate, it states that a reduced 10% tax rate will be applied on the delivery of buildings for dwelling purposes (buildings in which at least 50% of the built surface is for dwelling purposes), including garages and their annexes whenever transferred together, as long as no more than two parking spaces are assigned to each owner.

The purchase of a new residence requires the buyer to pay Value Added Tax. The Value Added Tax paid by the buyer is calculated by multiplying the purchase price by the current tax rate at the time of purchase. Payment is made to the salesman who will in turn pay the tax to the public Tax Agency.

The tax rates in force at present are:

  • In general terms, 10%.
  • 4% when they are special system council homes or public housing.

With lease contracts with a purchase option, for buildings or parts of buildings to be used exclusively as residences, including up to two parking spaces per residence and any annexes being rented together, before exercising this option (service provision), the tax rate of 10% will be applied, or 4% with residences under the social housing system.

The purchase of a used residence requires the buyer to pay Asset Transfer Tax, which is payable directly to the regional Tax Agency corresponding to the region in which the building is located.