It is therefore expected that in the coming years there will be an increase in housing developments, whether carried out by private individuals or by entities specialising in the sector.
In this context, in order to anticipate the costs and liquidity of real estate projects, a major factor is the VAT charged on the acquisition of land, regardless of whether, at the time of the transfer, the said land is considered not suitable for building, developed or in the process of being developed. Of interest in this regard is a recent decision of the Spanish Central Economic-Administrative Court (TEAC) concerning the transfer of a plot of land by a Compensation Board (junta de compensación).
In general, the transfer of land that is considered not suitable for building is exempt from VAT. In this context, land considered suitable for building is any land classified as building land (solar) or land that has the corresponding administrative licence and is suitable for building. This tax exemption does not extend to developed land or land in the process of being developed. Up to this point everything is clear. However, the question that arises is whether the sale of a plot of land that has not yet been developed and on which development work has not yet begun would be exempt if the parties had agreed on the final delivery of developed land.
In principle, everything would suggest that the exemption would apply. However, the TEAC stated that although the urban development works had not been started at the time the transaction was formally entered into, if there was an express agreement and willingness on the part of the transferor to hand over developed land, and if this commitment was laid down as a contractual obligation and the other provisions in the contract (conditions precedent or subsequent, components of the purchase price) showed that the (albeit future) subject matter of the contract was the transfer of a developed plot of land, the transaction would be subject to VAT and the exemption would not apply.
As we have mentioned in previous articles on VAT in real estate transactions, it is essential to analyse the wording of contracts and their literal meaning. It is therefore highly advisable to review the clauses of any contract, not just the ones solely concerned with tax, to ensure that the operation is structured in the way that best suits the parties and to avoid unwanted surprises in the case of tax inspection.