Rehabilitation works for tourist rentals cannot apply the 10% VAT rate

The application of the reduced rate of Value Added Tax (IVA) in building rehabilitation works has raised doubts regarding its scope, especially when the final purpose of the property is tourist leasing. The Dirección General de Tributos (DGT) has specified the criteria necessary to access this tax benefit.

What the DGT has resolved

For an intervention to be considered rehabilitation and thus taxable at 10%, the building must be suitable for housing. This suitability is determined by the design, construction, and legal purpose of the property, and the absence of a certificate of habitability does not prevent its recognition.

The resolution establishes two fundamental requirements for the works:

• Qualitative requirement: The actions must consist of structural elements, facades, roofs, or analogous and connected elements, representing more than 50% of the total cost of the work.
• Quantitative requirement: The cost of the works must be greater than 25% of the value of the building, excluding the value of the land.

Nevertheless, the DGT warns that if the works are classified as simple renovations or repairs and their purpose is tourist leasing, it will not be possible to apply the 10% rate.

What this means for you

If you are a natural person performing works on a property to exploit it through tourist leasing, you acquire the status of an entrepreneur. This implies that the nature of the works is decisive for the tax burden. If the intervention does not meet the strict definition of rehabilitation or if its objective is merely to maintain or renovate the property for tourist use, you must apply the general VAT rate.

What should be done

It is necessary to conduct a technical and economic analysis prior to the execution of the works. It must be verified that the intervention complies with both the percentage of cost in structural elements and the 25% threshold regarding the value of the property. Since the classification of the work directly impacts the suppliers' invoices, it is fundamental to have documentation that supports the nature of the rehabilitation and its compliance with the requirements of Law 37/1992.