How to waive the VAT exemption on the purchase of premises?
How not to pay ITP or VAT on the purchase of a real estate property
It is rare but many people do not know that they can pay less tax when buying premises, even in some cases when buying a house. The key phrases are “waiver of VAT exemption” and “reverse charge“.
But what does it mean to pay less tax?
It means not paying VAT and not paying ITP.
And you may ask, how is it done? ????
When you buy a second hand property in Spain you have to pay a tax called transfer tax, the famous ITP (Impuesto sobre Transmisiones Patrimoniales).
On the other hand, when you buy a new property, you have to pay the VAT (IVA) value added tax (and the AJD).
Both taxes VAT vs ITP are incompatible.
When you buy a second hand property you are exempt from paying VAT and pay ITP. When you buy a new property you pay VAT (and ADJ) and do not pay ITP.
VAT: Value Added Tax.
ITP: Property Transfer Tax.
ADJ: Documented legal acts.
In the sale and purchase of second hand real estate you are exempt from paying VAT because you have to pay ITP (Impuesto sobre Transmisiones Patrimoniales).
Well, by fulfilling certain requirements you can waive the VAT exemption and request to be taxed or pay VAT.
And here is the clue, if the seller and buyer, in the normal course of their business, sell and buy a property, the responsibility for paying VAT is transferred to the buyer who, in his VAT return, makes a note of the amount of VAT payable in the VAT due or charged and another note in the VAT to be refunded.
Both amounts are cancelled and no VAT is paid.
Interesting, isn’t it?
Let’s take a closer look at how the VAT exemption waiver works.
What is the waiver of the IVa exemption?
What does the waiver of VAT in Spain consist of?
When does ITP have to be paid?
Second and subsequent sales of real estate (in general, those not carried out by the developer or builder) are exempt from VAT.
In these cases, the buyer must pay Transfer Tax (ITP) at a rate of between 6 and 11% on the reference value of the property (depending on the autonomous community).
And if the buyer is an entrepreneur, this tax will mean a higher depreciation cost (as the ITP, unlike VAT, is not deductible).
Waiver of VAT exemption
Well, if you or your company is going to buy a property and you want to avoid this higher cost, you can ask the seller to waive the VAT exemption, so that the purchase is taxed by VAT instead of ITP.
For this to be possible, the following requirements must be met:
- The seller must be a VAT taxable person, i.e. he must have used the property in a VAT-liable activity.
- Your business must use the property for an activity in which you are entitled to deduct all or part of the VAT borne by you (if you are on a pro-rata basis, a waiver is also possible).
If the property is to be used for an exempt activity, without the right to deduct VAT, the waiver is not possible (e.g. if it is to be used as a doctor’s surgery).
Example of VAT exemption on the purchase of business premises
When waiving the VAT exemption, the AJD must be paid.
With the waiver, the transfer will be made with VAT, and you, as the acquirer, will be able to deduct this tax (totally or partially).
However, you will have to pay an additional tax that will cost you: the Tax on Documented Legal Acts (AJD), which will be between 1.5 and 2.5% (depending on the community where the property is located) of the real value of the property (in any case, a lower cost than if the purchase were taxed by ITP).
Example of waiver
See the costs if a lawyer buys premises from another businessman for 200.000 euros:
| Concept | No waiver | With resignation |
| Price | 200.000 | 200.000 |
| ITP (10%) | 20.000 | – |
| AJD (1,5%) | – | 3.000 |
| Total cost | 220.000 | 203.000 |
The purchase price is deemed to coincide with the reference value of the property.
How can the VAT exemption be waived?
Communications from the notary
In order to waive the exemption, the seller must notify you in writing that he is waiving the exemption, and you must inform him that you are a VAT taxable person and that you are entitled to the total or partial deduction of VAT. You can make these notifications in the deed of sale itself .
If, due to an error on the part of the notary, these communications are not included in the deed, this can be rectified later, and the waiver of the exemption will be applicable .
However, the notary must accept that there was an omission or oversight in the initial deed; if the parties a posteriori invoke the waiver, the courts could reject it on the grounds that it was made out of time, after the transaction.
See below for the clause to be included by the notary in the deed of sale.
Reversal of the taxable person
Self-repercussion
As the buyer has waived the right to pay VAT, the so-called “inversion of the taxable person” takes place:
- The seller will not have to charge VAT on his invoice (he will only have to indicate on it a mention of the type “Operation with inversion of the taxable person”), and it will be you – as the purchaser – who will have to self-recharge and settle the VAT that is applicable on the sale of the property, deducting it in the same declaration .
Therefore, if you are entitled to deduct 100% of the input VAT, this operation will not result in higher taxation.
Advantages and disadvantages of the VAT exemption waiver
Verification
If your company acquires a used property from another company, it is normal for the latter to waive the VAT exemption and thus only pay ADJ
However, you should consider whether it is really in your interest to waive the VAT exemption.
See some situations where it is not always the best alternative.
Property to rehabilitate or demolish
No waiver.
First of all, remember that the waiver of the exemption is not the only case in which the transfer of a used property is subject to VAT.
If you are acquiring the property with the intention of refurbishing it, or demolishing it and then carrying out a new development, the vendor must charge VAT on it without the need to waive the exemption.
To do so, it is sufficient for him to state in the deed of sale the purpose for which the property is to be used [LIVA, art. 20.Uno.22ºA] .
In a purchase of this type, if the seller waives the VAT exemption (this error is quite common), you, as the buyer, will have an additional cost.
The VAT will be the same, but you will bear a higher AJD:
When the transfer carries VAT because the property is to be rehabilitated or demolished, the AJD to be paid in most communities is 1 – 2%.
The VAT can be recovered via a quarterly tax return but you will have the cost of the AJD.
Keep an eye on the Vat pro-rata
If your business is on a pro-rata basis, calculate whether it is better to pay ITP or VAT and ADJ.
Before renouncing the VAT exemption, check whether the savings in ITP offset the VAT and AJD you will pay. Also take into account the effects of the adjustment of capital goods on the VAT initially deducted.
VAT EXEMPTION WAIVER CLAUSE TO BE ADDED TO THE DEED OF PURCHASE OF THE PROPERTY
This standard VAT waiver clause is from the Notary Don José Bauzá de Orihuela Costa.
En las segundas y posteriores transmisiones de bienes inmuebles. La entrega del bien inmueble que se efectúa mediante la presente escritura es una operación sujeta al Impuesto sobre el Valor Añadido, puesto que le que resulta aplicable la exención renunciable establecida en el artículo 20. Uno22º de la Ley 37/1992, de 29 de diciembre, reguladora del Impuesto sobre el Valor Añadido.
La parte transmitente, en ejercicio de la facultad que en ella reside en virtud de lo previsto en el artículo 20.dos de la ley 37/1992, renuncia expresamente a la exención. La parte adquirente toma razón de la renuncia efectuada, al tiempo
que manifiesta su condición de sujeto pasivo del Impuesto sobre el Valor añadido, que actúa en el ejercicio de sus actividades empresariales, y que tiene derecho a la deducción total de la cuota del Impuesto soportado en la presente compraventa que, en cumplimiento de lo establecido en el articulo 88 de la Ley 37/1992, se le repercute y ella soporta.
Dicha manifestación se efectúa en base al artículo 8.1 párrafo segundo del Real Decreto 1624/1992 de 29 de diciembre por el que se aprueba el Reglamento del Impuesto sobre el Valor Añadido.
La primera copia de la presente escritura queda, en consecuencia, sujeta al Impuesto sobre Actos Jurídicos Documentados por el gravamen a que se refiere el artículo 27 del Texto Refundido de la Ley del Impuesto sobre
Transmisiones Patrimoniales y actos jurídicos documentados, aprobado mediante Real Decreto Legislativo 1/1993 de 24 de septiembre.
En base al artículo 84, e) de la Ley 37/1992, de 28 de diciembre, del Impuesto sobre el Valor Añadido, es sujeto pasivo la parte adquirente, en virtud del mecanismo de la inversión previsto en la citada normativa; por lo que se obliga a ingresarlo en el Tesoro Público, al tipo del 21 por ciento, consecuentemente con ello, las partes manifiestan:
a) Que tienen por realizada de forma fehaciente y simultáneamente a la entrega del bien transmitido la comunicación de la renuncia.
b) Que dicha renuncia lo es con carácter individual y para esta concreta operación.
c) Que la parte compradora declara formalmente que tiene la condición de sujeto pasivo del IVA, que actúa en el ejercicio de su actividad empresarial y que tiene derecho a la deducción total del impuesto soportado por esta
adquisición.
d) Que la parte del precio correspondiente al IVA es igualmente retenido por la parte compradora para el cumplimiento de sus obligaciones legales, como sujeto pasivo del impuesto, conforme al artículo 84.2.e. de la Ley 37/1992 de 28 de diciembre reguladora del IVA, según redacción dada por la Ley 7/2012 de 29 de octubre, de modificación de la normativa tributaria y presupuestaria y de adecuación de la normativa financiera para la intensificación de las actuaciones en la prevención y lucha contra el fraude.
e) Que se han cumplido las obligaciones formales exigidas por dicha ley y reglamento. –
f) De acuerdo con el artículo 18.1 párrafo 2º del R.D.L. 1/1993 de 24 de septiembre, por el que se aprueba el Texto refundido de la Ley del ITPOAJD, esta operación queda sujeta al concepto de Actos Jurídicos Documentados al
tipo correspondiente.
La parte transmitente se compromete a entregar a la parte adquirente la
correspondiente factura por la transmisión objeto de la presente escritura.
