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V0467-17 23 February 2017 · SG de Impuestos sobre el Consumo Criterion in force
IVA · tipo impositivo reducido

Material costs for 10% reduced VAT rate in renovation works must not exceed 40% of the taxable base

A carpentry company sought guidance on how to split material and labour costs to apply the reduced VAT rate to renovation works. The DGT clarifies that if the cost of supplied materials exceeds 40% of the taxable base, the transaction is classified as a supply of goods and is subject to the standard 21% rate.

The question raised

Correct method for itemizing the elements of the manufacturing and installation budget for the purposes of applying the reduced tax rate under Article 91.One.2.10º of the Value Added Tax Law.

The DGT's ruling

To apply the 10% rate to residential renovation works, the cost of the materials provided (goods incorporated into the building) must not exceed 40% of the taxable base. If the materials are manufactured by the entrepreneur themselves, their cost shall include both the raw materials and the manufacturing labor. It is not possible to itemize the execution of the works to apply different rates if said limit is exceeded, as the operation would qualify globally as a supply of goods at 21%.

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