Understanding the rules that apply to the taxation of real estate transactions is essential for anyone operating in the market, whether investors, developers or individuals. The variety of regulations that determine when and how much VAT should be charged, and when to apply other forms of taxation, such as civil law transaction tax (PCC) or personal income tax (PIT), requires detailed analysis and an awareness of which regulations apply under which circumstances.
Sale of real estate and VAT
VAT in real estate transactions covers a broad spectrum of issues that relate to both the general rules for taxing these transactions and special cases of exceptions and exemptions. The most important thing is to understand which transactions are subject to VAT, and when the personal property tax (PCC) or personal income tax (PIT) should be applied.
General principles of VAT taxation
The basic principle is that the supply of real estate for consideration is generally subject to VAT. Normally, the seller of commercial real estate must charge VAT. However, there are a number of situations that may affect the application of this tax, including the first settlement of the building or the period that has elapsed since that settlement. If less than two years elapse between the first settlement and the delivery of the building, the transaction is subject to VAT. On the contrary, if this period is longer, the supply may be exempt from VAT, as long as no significant improvements have been made to the building that account for at least 30% of its initial value.
VAT rates and place of taxation
VAT rates may vary depending on the type of transaction and the location of the property. In international cases, it is important to determine the place of supply of services. In the European Union, the place of taxation depends on the location of the property, but the rules can vary depending on the details of the transaction and the tax status of the parties.
VAT exemptions
It is worth noting that not all real estate transactions are subject to VAT. For example, the sale of real estate may be exempt from VAT if it was purchased for personal use by an individual buyer. These exemptions also apply to real estate that has not changed hands for two years after initial occupancy.
PCC tax vs. VAT
Typically, when a property is sold on the secondary market by a person who is not registered as an active VAT payer, the transaction may be subject to PCC rather than VAT. The PCC is calculated based on the market value of the property and is usually 2%. It is payable by the buyer and is usually collected by the notary when the transaction is finalized.
International settlements
In the context of international transactions, VAT can be deducted by the purchaser depending on the nature of the transaction, such as WNT (Intra-Community Acquisition of Goods) or import of services. It is important that the goods and services are used for taxable activities in order for the purchaser to exercise the right to deduct VAT.
