Machinery and equipment will only be subject to ICIO if they are inseparable from the work

Determining the taxable base of the Tax on Constructions, Installations, Works, and Repairs (ICIO) generates frequent doubts, especially when the work includes the installation of machinery or complex technical equipment. The Directorate General of Taxes (DGT) has specified the criteria to distinguish which costs must be taxed and which remain outside the calculation of the tax.

What the DGT has resolved

The DGT establishes that the cost of equipment and machinery manufactured by third parties outside the work site must be excluded from the ICIO taxable base. The only exception to this exclusion is the cost derived from its installation in the property.

For a technical element to be included in the taxable base, it must strictly meet the following requirements:

• Inseparability: It must be a technical element inseparable from the work and lack its own identity regarding the construction.
• Integration in the project: It must appear expressly in the urban planning license project.
• Nature of the element: It must not be a relevant element for the activity or operating license, but rather for the urban planning license.
• Purpose: It must be necessary for the execution and provide essential services for the habitability or use of the work.

What this means for you

Companies executing renovations or installations subject to an urban planning license must make a precise technical and accounting distinction between construction materials and technological equipment. If the equipment consists of autonomous elements that are moved to the work site already manufactured, their value does not form part of the ICIO base, except for the amount of their assembly.

This criterion prevents the tax from being applied to assets that, although necessary for the operation of a center (such as a sports center), do not constitute the structure or the urban planning essence of the construction itself.

What is advisable to do

It is necessary for technical projects and tax settlements to accurately reflect the nature of each item. It must be verified that the elements intended to be excluded from the taxable base meet the condition of having been constructed outside the work and that their relevance is operational or activity-based, rather than urban planning-based. Correct classification in the urban planning license project is fundamental to avoid requests from the Administration.