One of the aspects of the Value Added Tax that produces more doubts is the IVA rate to which individual transactions must be taxed. In this explanation, we are going to put in plain words the VAT RATE that must dwell to the works of improvement of buildings according to the type of work realised and the characteristics of the property.
In the VAT law, we can distinguish two kinds of works: restoration works and renovation and repair works.
The restoration works are those in which more than 50% of the cost corresponds to works of consolidation and treatment of structural elements, façades or roofs, or related to them. Besides, their total cost must exceed 25% of purchase price of the property – when acquired in the two previous years- or, otherwise, the market value. In both cases discounting the value of the plot.
When a works project does not meet these characteristics and therefore cannot be described as restoration, it will be considered works of renovation and repair (whether masonry, plumbing, electricity, painting, carpentry, etc.); maintenance service of facilities are not included.
With this in mind, restoration works will be taxed at a reduced rate of 10% when the following conditions are met:
• That the works are carried out in a building, or parts of it, destined mainly to dwelling, being understood as such when at least 50% of the built area is destined for dwelling.
• Directly agreed between the owner and the contractor.
If these conditions are not satisfied, will apply the general tax rate 21%.
On the other hand, the renovation and repair works will be taxed at a reduced rate of 10% when meets the following requirements:
• That the works are carried out in a building or parts of it destined to dwelling.
• That they are executed for a natural person, who does not act as an entrepreneur or professional, or a community of owners, and uses the dwelling for their private use.
• That the construction or restoration of the house object of the works finished more than two years ago.
• That the builder that carry out the works does not supply materials for their execution for an amount higher than 40% (not including VAT) of the total investment.
Once again, should all these requirements not be met, it would be taxed at the general rate of 21%. It would be the case, i.e., of improvement in commercial premises, or reforms promoted by the lessor in rented dwellings.