Spain’s Supreme Court issued a decision on 28 January 2025 in a case involving the application of the reduced VAT rate to the delivery of a home. The court held that the absence of a certificate of habitability or an occupancy license does not automatically preclude the application of the reduced VAT rate for the transfer of new homes.
The case involved a company that acquired residential properties in 2007, which although completed, lacked a certificate of habitability or a first occupancy license at the time of delivery. The tax authorities took the position that in the absence of these documents the properties were not suitable for use as dwellings, with the result that the general VAT rate of 16% applied rather than the reduced rate of 7% (the rate applicable at the time).
The dispute centred on the interpretation of the phrase “housing suitable for use.” The Supreme Court relied on CJEU case law, which considers a building to be deemed suitable for use as a dwelling when it is completed and constructed for the purpose of serving as a permanent residence. Applying this criterion to the case at hand, the Supreme Court concluded that, for a building to be considered suitable for use as housing for the purpose of applying the reduced VAT rate, the dwelling must be completed and its purpose must be for habitation, i.e., to function as a home or residence for an individual or a family. The court also noted that the reduced VAT rate applies only to transactions qualifying as housing deliveries, not to transactions related to housing but that are classified as services.
The Supreme Court clarified that even though the properties did not have a certificate of habitability at the time of delivery, this did not prevent the dwellings from being considered suitable for use as housing. The decision also establishes that the definition of "housing suitable for use" should not depend solely on the existence of an administrative certificate but rather on the material reality of the property being a dwelling that is fit for habitation. This approach aligns with the principle of tax neutrality and prevents undue fiscal burdens due to administrative formalities.
The court also emphasised that, while administrative requirements, such as the certificate of habitability or occupancy license, serve as formal recognition of a property for residential use, their absence should not invalidate the physical characteristics of the building. In addition, the court noted that delaying or withholding the application of the reduced VAT rate due to pending bureaucratic procedures would be inconsistent with the economic reality of completed housing units, especially when they are effectively designed and built for residential purposes.
Finally, the Supreme Court noted that the sale of tourist apartments is subject to the general VAT rate rather than the reduced rate because such units do not qualify as “housing” since their intended use cannot be the permanent residence of an individual or family.
Alvaro Gomez-Elvira
Maria Gonzalez
BDO in Spain
The case involved a company that acquired residential properties in 2007, which although completed, lacked a certificate of habitability or a first occupancy license at the time of delivery. The tax authorities took the position that in the absence of these documents the properties were not suitable for use as dwellings, with the result that the general VAT rate of 16% applied rather than the reduced rate of 7% (the rate applicable at the time).
The dispute centred on the interpretation of the phrase “housing suitable for use.” The Supreme Court relied on CJEU case law, which considers a building to be deemed suitable for use as a dwelling when it is completed and constructed for the purpose of serving as a permanent residence. Applying this criterion to the case at hand, the Supreme Court concluded that, for a building to be considered suitable for use as housing for the purpose of applying the reduced VAT rate, the dwelling must be completed and its purpose must be for habitation, i.e., to function as a home or residence for an individual or a family. The court also noted that the reduced VAT rate applies only to transactions qualifying as housing deliveries, not to transactions related to housing but that are classified as services.
The Supreme Court clarified that even though the properties did not have a certificate of habitability at the time of delivery, this did not prevent the dwellings from being considered suitable for use as housing. The decision also establishes that the definition of "housing suitable for use" should not depend solely on the existence of an administrative certificate but rather on the material reality of the property being a dwelling that is fit for habitation. This approach aligns with the principle of tax neutrality and prevents undue fiscal burdens due to administrative formalities.
The court also emphasised that, while administrative requirements, such as the certificate of habitability or occupancy license, serve as formal recognition of a property for residential use, their absence should not invalidate the physical characteristics of the building. In addition, the court noted that delaying or withholding the application of the reduced VAT rate due to pending bureaucratic procedures would be inconsistent with the economic reality of completed housing units, especially when they are effectively designed and built for residential purposes.
Finally, the Supreme Court noted that the sale of tourist apartments is subject to the general VAT rate rather than the reduced rate because such units do not qualify as “housing” since their intended use cannot be the permanent residence of an individual or family.
Alvaro Gomez-Elvira
Maria Gonzalez
BDO in Spain