Entities acquiring residential properties must meet leasing requirements to apply 4% VAT

The application of the reduced VAT rate in the acquisition of real estate intended for housing is not automatic for entities. The Dirección General de Tributos (DGT) has specified the necessary requirements for companies to benefit from the 4% rate instead of the general or ordinary reduced rate.

What the DGT has resolved

The ruling establishes that, to apply the 4% rate provided for in Article 91.Two.1.6º of Law 37/1992, entities must meet two simultaneous conditions:

• Being subject to the special regime for entities dedicated to the leasing of residential properties, in accordance with Chapter III of Title VII of the Corporate Income Tax Law (LIS).
• The income derived from the subsequent leasing of said residential properties must qualify for the relief established in Article 49.1 of the LIS.

Nevertheless, the DGT allows the application of this tax rate if the entity, even if it does not meet the requirements at the exact moment of acquisition, has a confirmed intention to engage in leasing and comply with the Corporate Income Tax relief during the following fiscal year.

What this means for you

If your entity, whether a cooperative or a company dedicated to real estate management, plans to acquire buildings for use or leasing, you must verify its compliance with Corporate Income Tax regulations before the purchase. If the requirements for dedication to leasing or the relief on income are not met, the transaction will be subject to the 10% rate.

What should be done

It is necessary to conduct a prior analysis of the entity's economic activity and its business model to ensure that the intention to engage in leasing is solid and verifiable. The correct classification of the activity under Corporate Income Tax is the determining factor for applying the 4% VAT rate in the acquisition of assets.