Waiving the VAT exemption in property transactions: a legal decision with tax consequences

Updated on 27 September 2026. The VAT and ITPAJD rules on the waiver have not changed in 2025-2026. We have added the rates currently in force in the Community of Madrid (6% TPO without a waiver; 1.5% AJD with a waiver), the TEAC doctrine of March 2026 on implied waivers, the Supreme Court case law on the fine for not reporting reverse-charge VAT and the mistakes that cause the most problems in practice.

In the field of property law, many sales not only require a properly designed contract, but also a prior tax analysis to avoid unnecessary costs. One of the most common, and at the same time least known, situations is the waiver of the VAT exemption on the transfer of certain properties between businesses or professionals.

At Coda Nuance Legal, where tax advice is one of our core services, we approach this type of transaction from a comprehensive perspective, combining tax expertise with property practice.

What does waiving the VAT exemption involve?

Law 37/1992 on Value Added Tax (Ley del IVA, LIVA) exempts two kinds of property transfers made by businesses and professionals:

• Transfers of rural land and other non-buildable land (art. 20.Uno.20.º). The exemption does not cover serviced (urbanised) land or land on which urbanisation works are under way (terrenos urbanizados o en curso de urbanización).
• Second and subsequent transfers of buildings (art. 20.Uno.22.º), that is, the sale of an already "used" property after the developer's first transfer.

Article 20.Dos of the LIVA allows those two exemptions to be waived, so that a transaction which would be exempt by default becomes subject to and not exempt from VAT. The waiver is made by the seller, who is the taxable person, but the seller cannot do it alone: the rules require the buyer to meet certain conditions and to declare so in writing.

When there is nothing to waive

Before considering a waiver, check that the transaction really is subject to VAT and exempt:

• If the seller is a private individual not acting as a business, the transaction is not subject to VAT and is taxed under Transfer Tax (Transmisiones Patrimoniales Onerosas, TPO).
• If it is a first transfer (the developer sells a completed building), it is already subject to VAT. It stops being a first transfer if, before selling it, the developer has used it, or let it without a purchase option, continuously for two years or more, unless the buyer is the person who used it.
• Nor does the exemption apply, among other cases, to buildings sold so that the buyer can refurbish them (subject to the regulatory requirements) or demolish them ahead of a new development.
• If a business or a branch of activity capable of operating with its own resources is transferred (an "autonomous economic unit", art. 7.1.º LIVA), the transaction is not subject to VAT and the property is taxed under TPO (art. 7.5 of the Consolidated Text of the ITPAJD Law). No waiver is possible here.

After a refurbishment in the tax sense, the next sale becomes a first transfer again. There is a refurbishment when two conditions are met (art. 20.Uno.22.º.B LIVA):

• More than 50% of the project cost relates to structural, façade or roof works, or to analogous or connected works.
• The total cost exceeds 25% of the building's purchase price, if it was bought in the two years before the works began, or otherwise of its market value when they began, in both cases excluding the land.

This concept causes many disputes: in April 2026 the Tribunal Supremo (Spanish Supreme Court) admitted several cassation appeals to clarify how connected works are counted (Order of 15 April 2026, appeal 3109/2025, ECLI:ES:TS:2026:3665A). For an initial check, the Agencia Tributaria (Spanish Tax Agency) offers its Calificador inmobiliario (property transaction classifier).

Why might it be worth waiving the exemption?

Under article 7.5 of the Consolidated Text of the Law on the Tax on Property Transfers and Documented Legal Acts (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados, TRLITPAJD), property transfers exempt from VAT are taxed under TPO. TPO is paid by the buyer and is not deductible: it is a definitive cost.

If the exemption is waived, the transaction is subject to VAT, which a buyer with a full right of deduction recovers in the same return. In exchange, the deed is subject to Stamp Duty on documented legal acts (Actos Jurídicos Documentados, AJD) at its graduated rate, which is not deductible either. That is why, in transactions between businesses or professionals involving property used in an economic activity, the waiver is usually the more efficient option, provided the requirements are met.

The waiver may also suit the seller. If the seller bought or built the property deducting the VAT and the adjustment period for buildings has not yet ended, which covers the nine calendar years following the acquisition or, if the seller started using the property later, the year in which use began and the following nine (art. 107.Tres LIVA), an exempt sale obliges it to repay the part of the VAT deducted that corresponds to the remaining years (art. 110 LIVA). With the waiver, that repayment is avoided.

Example in the Community of Madrid

One company sells commercial premises to another for €1,000,000 (a price not lower than the Cadastre's reference value, the valor de referencia del Catastro). The buyer will use them in its business and deducts 100% of the VAT:

The saving is clear, but it rests on these assumptions. If the buyer can only deduct part of the VAT (pro rata), the non-deductible part becomes a cost and the figures need to be redone.

Legal requirements for a valid waiver

The waiver is neither automatic nor unrestricted. Three legal and tax requirements must be met (art. 20.Dos LIVA and art. 8.1 of the VAT Regulation):

1. Transaction subject to but exempt from VAT. It must be a transfer of non-buildable land or a second or subsequent transfer of buildings made by a business or professional. If the transaction is not subject to VAT, there is nothing to waive.
2. Buyer entitled to deduct. The buyer must be a business or professional acting in the course of its activity and be entitled to deduct all or part of the VAT on the purchase. Since 2015 it is also enough that, even without that right at the time, the foreseeable use of the property is wholly or partly in transactions that give a right of deduction. This point is decisive for homes: residential lettings are exempt with no right of deduction (art. 20.Uno.23.º.b LIVA), so a buyer purchasing to let as a home normally cannot benefit from the waiver. Letting commercial premises, offices or warehouses, by contrast, is subject to VAT and does allow the waiver.
3. Timing of the waiver. It must be communicated before or at the time of the transfer. A later waiver is not valid. In practice, the transfer usually coincides with signing the deed, which makes prior planning essential.

Formal requirements: how to document it

In property law, form is as important as substance. The VAT Regulation requires the waiver to be communicated to the buyer in a verifiable manner (de forma fehaciente), transaction by transaction, and to be supported by a declaration signed by the buyer stating its right to deduct or the foreseeable use of the property.

The safest approach is to record everything in the public deed (escritura pública): the seller's express waiver and the buyer's declaration. If a private contract or deposit contract (contrato de arras) is signed first, it is advisable to agree there already that the exemption will be waived. We explain this in The deposit contract (contrato de arras): what you should know before signing.

Take care if part of the price is paid on account before the deed, through the deposit or in instalments: the VAT on that amount accrues when it is received (art. 75.Dos LIVA). The waiver and the buyer's declaration should already be signed at that point, and the buyer must include that amount, under the reverse charge, in its form 303 for the period in which it pays.

The seller's invoice carries no VAT amount and must include the wording "inversión del sujeto pasivo" (reverse charge) (art. 6.1.m of the Invoicing Regulation, Royal Decree 1619/2012).

What if the deed does not mention the waiver? The Tribunal Económico-Administrativo Central (TEAC, Central Economic-Administrative Tribunal), in its decision of 24 March 2026 (RG 00/03613/2024), which reiterates a 2019 criterion, accepts an implied waiver when the deed shows that VAT was charged and the buyer is a business with a right to deduct.

But it adds an important nuance: since the reverse charge applies in these cases, the VAT wrongly charged is not deductible by whoever bore it. An implied waiver is a safety net in a dispute with the tax authorities, not a way to plan the transaction.

Reverse charge: who reports the VAT

One of the main consequences of the waiver is the reverse charge (inversión del sujeto pasivo, art. 84.Uno.2.º.e LIVA). The buyer becomes the one who reports the VAT: it includes it as output VAT and, if entitled, as deductible input VAT in its return for the period (form 303). The seller neither charges nor pays over the tax. For a business with a full right of deduction, the effect is neutral and there is no actual cash outlay for the tax.

Even so, do not neglect the return: the law classes failing to enter the VAT on a reverse-charge transaction in the return as a serious offence, with a proportional fine of 10% of that VAT, which cannot be graded (arts. 170.Dos.4.º and 171.Uno.4.º LIVA). The fine is reduced by 30% if you accept the proposed assessment and the remainder by a further 40% if you pay it on time without appealing (LIVA art. 171.Dos and Tres; art. 188 of the Ley General Tributaria, the General Tax Act): with both reductions it comes down to 4.2% of the VAT.

However, the Tribunal Supremo has held that the courts may annul that fine as disproportionate where the omission causes no loss to the tax authorities and there is no fraud, applying the EU principle of proportionality (judgment of 25 July 2023, ECLI:ES:TS:2023:3586, given precisely in a case on the purchase of a building under the reverse charge). But the tax authorities can still impose it and you would have to appeal, giving up the reductions, so the sensible course is to report the transaction correctly from the outset.

Impact on AJD and the need for a financial analysis

The transaction is not free of costs. With the waiver, the first copy of the deed is taxed under the graduated rate of AJD (art. 31.2 TRLITPAJD), which is compatible with VAT and not deductible. It is paid by the buyer (art. 29) at the rate approved by each autonomous community, or at 0.50% if none has been approved.

In the Community of Madrid (Legislative Decree 1/2010):

• Deeds transferring property with a waiver of the exemption: 1.5% (art. 35), twice the general rate of 0.75% (art. 36). Calculating the transaction with the general rate is a common mistake.
• General TPO on property: 6% (art. 28).
• Reduced TPO of 2% for real-estate companies buying homes to resell within three years, subject to requirements such as the resale being taxed under TPO (art. 30).
• Since 1 January 2026, a 95% relief on TPO or AJD for long-established shops and hospitality businesses (comercios y negocios de hostelería con solera, with at least 50 years of activity in Madrid) buying property for their business (arts. 30 quinquies and 38 quater).

The tax bases matter too: TPO is charged on the Cadastre's reference value or on the price, if higher (art. 10.2 TRLITPAJD). AJD is charged on the declared value, which cannot be lower than that value (art. 30.1). The ITPAJD self-assessment is filed with the autonomous community where the property is located, within 30 working days of signing (art. 102 of the ITPAJD Regulation).

Other autonomous communities apply their own TPO and AJD rates. That is why a prior comparative analysis is needed for each transaction.

Common mistakes

• Waiving when the buyer is not entitled to deduct; for example, because it will let the property as a home. The waiver is invalid, the transaction reverts to TPO and the autonomous community may claim it with late-payment interest.
• Charging VAT on the invoice or in the deed instead of applying the reverse charge. The buyer will not be able to deduct that VAT and it will need to be corrected.
• Forgetting to include the transaction in the buyer's form 303, with the risk of a 10% fine.
• Formalising the waiver after the deed.
• Not checking whether it is a first transfer (refurbishment, two years of use) or the transfer of an autonomous economic unit (a business or a branch of activity).
• Calculating AJD with the general rate rather than the specific rate for waivers (1.5% in Madrid).
• Forgetting the effect on the seller: the adjustment of the VAT it deducted if the sale is exempt.

Comprehensive advice at Coda Nuance Legal

Waiving the VAT exemption is a clear example of how an apparently tax-only decision has a profound impact on property law. At Coda Nuance Legal, we offer specialist tax advice as the core of our services, complemented by a legal and property-law approach aimed at secure, efficient transactions tailored to each client.

If you are negotiating the purchase or sale of commercial premises, an office, a warehouse or a building between businesses, review the tax treatment before signing the deposit contract or the deed. You can book a property law consultation or write to us, and we will go through it with the figures for your transaction.

A proper prior analysis can make the difference between a well-structured transaction and an unnecessary tax cost.

Legislation and sources

• Law 37/1992 on Value Added Tax (arts. 7, 20, 75, 84, 107, 110, 170 and 171)
• Royal Decree 1624/1992, VAT Regulation (art. 8)
• Royal Legislative Decree 1/1993, Consolidated Text of the ITPAJD Law (arts. 7.5, 10, 29, 30 and 31)
• Royal Decree 828/1995, ITPAJD Regulation (art. 102)
• Legislative Decree 1/2010 of the Community of Madrid on ceded taxes (arts. 28, 30, 30 quinquies, 35, 36 and 38 quater)
• Royal Decree 1619/2012, Invoicing Regulation (art. 6)
• Law 58/2003, General Tax Act (art. 188)
• Tribunal Supremo, judgment of 25 July 2023 (ECLI:ES:TS:2023:3586), on the proportionality of the 10% fine under the reverse charge
• Tribunal Supremo, order of 15 April 2026, appeal 3109/2025 (ECLI:ES:TS:2026:3665A), on refurbishment works
• TEAC, decision of 24 March 2026, RG 00/03613/2024
• Agencia Tributaria, VAT Practical Manual 2025: property exemptions