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V0027-17 3 January 2017 · SG de Impuestos sobre el Consumo Criterion in force
IVA · urbanización de terrenos

Sale of developed plots by an owner who deducted VAT on development costs may be subject to VAT

A landowner who developed and subdivided plots has requested a ruling on whether the sale of the remaining plots is subject to VAT or Transfer Tax (ITP). The Directorate General for Taxes (DGT) has determined that, because the owner deducted the VAT paid on the development costs, they assume the status of a business person, making the sale subject to VAT.

The question raised

Question posed: Consideration of the taxpayer as an entrepreneur or professional for the purposes of the transfer of the two plots not initially intended for sale and, consequently, the liability thereof to Value Added Tax or to Transfer Tax and Stamp Duty.

The DGT's ruling

Landowners acquire the status of entrepreneur when they begin to incur urbanization costs with the intent to sell. The deduction of VAT incurred on urbanization works is an objective element that evidences the status of entrepreneur and the allocation to professional assets. If this status exists, the transfer of the plots shall be subject to VAT and not to Transfer Tax due to the incompatibility between both taxes.

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