IVA in a Project: Where It Applies and What You Can Reclaim

IVA (impuesto sobre el valor añadido, Spanish VAT) arises in a property project in three places: when buying from a developer or with the exemption waived, on the contractor's renovation invoices, and when selling new or deeply rebuilt housing. An ordinary purchase and resale of a second-hand apartment carries no IVA, and ITP (Impuesto sobre Transmisiones Patrimoniales, transfer tax) is paid instead. You can reclaim IVA only if your own transactions are subject to IVA: a sale with IVA or the rental of commercial premises. All rates below were checked against the BOE as of 12 October 2026.

Where a project has IVA and where it does not

Waiving the exemption is possible only if the buyer confirms a right to deduct IVA, at least in part (art. 8 Reglamento IVA). In such a deal the buyer pays the tax himself: he both charges the IVA and deducts it in the same return. A private individual who plans to live in the apartment cannot waive.

Which rate applies to renovation: 10% or 21%

The general rate is 21% (art. 90 LIVA). The 10% rate applies in two cases.

First: works to repair and renew a home, if the client is a private individual not acting as a business, uses the home for himself, the building was completed at least two years before the works began, and the contractor's materials make up no more than 40% of the cost (art. 91.Uno.2.10 LIVA). Under the wording in force until 30 November 2026, an investor company does not meet this condition.

Real Decreto-ley 29/2026 (BOE-A-2026-20823) extends 10% from 1 December 2026 to such works in a home let as the tenant's main residence, whoever the landlord is, when paid by card, transfer or a named cheque. As of 12 October 2026 Congress has not validated the act, so this is a question for the asesor fiscal (tax adviser) closer to the invoice date.

Second: construction or rehabilitación works on buildings intended mainly for housing, under a contract directly between the promotor (developer) and the contractor (art. 91.Uno.3.1 LIVA). The law also introduces inversión del sujeto pasivo (reverse charge) here: the contractor issues the invoice without IVA, and the promotor charges the tax himself and deducts it himself (art. 84.Uno.2.f LIVA). Whether a particular renovation falls into this category depends on how the works are classified, and that is a question for the asesor fiscal. Not every apartment renovation counts as rehabilitación in the sense of the law.

What counts as rehabilitación

In LIVA this is a narrow concept: more than 50% of the project cost goes on structure, façades, roofing or similar works, and the total cost of the works exceeds 25% of the purchase price of the building excluding the land share, if the purchase was within two years before the works began, otherwise 25% of its market value when the works began (art. 20.Uno.22.B). Related works (plumbing, electrics, climate control) count towards the first threshold only if they cost less than the main structural works. If both thresholds are passed, the later sale counts as a first transfer and carries IVA of 10%. If not, it is a second transfer: exempt, with ITP for the buyer.

A worked example, not a forecast. An apartment is bought for €400,000 a year before the works begin, with land at 30% of the price (assumption). If more than two years have passed since the purchase, the threshold is calculated from the market value of the building. The building price is €280,000, and the 25% threshold is €70,000. A renovation of €70,000 does not exceed the threshold, and one of €90,000 does. But even then a second threshold is needed: more than half of the works must be structural. Both conditions must be checked separately.

What can be reclaimed

IVA can be deducted to the extent that you use what you bought for transactions that are subject to IVA (art. 94 LIVA). The sale of an exempt home and the rental of a home give no such right: then the IVA on the renovation invoice stays in expenses. A comparison on one invoice (works of €100,000 before IVA):

The rules for recovery are simple. The deduction is claimed in the Modelo 303 return for the period when the tax was incurred, or in later ones, but no later than four years (art. 99.Tres LIVA). Quarterly returns are filed in the first 20 days of April, July and October, and for the last quarter by 30 January (art. 71 Reglamento IVA). If deductions exceed the tax charged, the balance at 31 December can be claimed as a refund in the last return of the year (art. 115 LIVA).

One catch: a deduction on a building can be recalculated later. If the building was first used for taxable transactions and then for exempt ones, the deduction is regularised over the following nine years (art. 107.Tres LIVA).

Who this scheme is not for

A private individual who buys a home to live in or to let cannot reclaim IVA: the right to deduct belongs to a business with taxable transactions. It also does not suit someone who plans to sell the property without IVA but expects a refund of the renovation tax at the start. Questions for the asesor fiscal before buying: will my renovation qualify as rehabilitación, will the invoice carry inversión del sujeto pasivo, can I waive the exemption on purchase, and what will AJD of 3.5% cost.

The effect of IVA on the project budget itself is visible in the full project budget, and the difference between IVA and ITP when buying new housing is covered in the article on new build versus resale. Why a company does not always get 21% back is explained in the article on IVA on renovation.