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V0245-22 11 February 2022 · SG de Impuestos sobre el Consumo Criterion in force
IVA · inversión del sujeto pasivo

Application of passive investment in urbanisation works contracted with a local council

A company asked whether it should apply passive investment when invoicing urbanisation works to a local council. The DGT replied that if the local council acts as a contractor and the work is urbanisation, the contractor does not need to charge VAT.

The question raised

It is questioned whether the reverse charge rule is applicable to the invoicing of the corresponding land development works.

The DGT's ruling

The reverse charge mechanism applies when the recipient is a business or a professional, the operation constitutes a work execution (with or without materials), and the contract's purpose is the development of land or the construction/renovation of buildings. In this case, the contractor must not charge VAT to the city council if it acts as a business. Compliance with these requirements, especially the status of the recipient as a business, is a matter of fact.

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