Buying a Commercial Property: Transfer Tax, VAT, Stamp Duty, Municipal Capital Gains Tax and Property Tax – Who Pays What

Buying a commercial property, whether for your own business or as an investment, doesn’t end with the price on the deed. Four or five different taxes come into play around the transaction, and each one falls on a different party. Knowing in advance who pays what avoids surprises at the notary’s office and mistakes when booking the purchase.

ITP or VAT + AJD: it depends on who is selling

The first question is who is selling you the property, because that determines the main tax. The two routes are mutually exclusive.

If a private individual sells (or anyone not acting as a business in that transaction), the sale is subject to Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas, ITP). The buyer pays it, and the rate is set by each autonomous region, so it varies depending on where the property is located. It is filed with the regional tax authority within the deadline set by that region’s rules.

If a company or a self-employed professional sells, the transaction is subject to VAT (generally at 21%) rather than ITP. In addition, the public deed is subject to Stamp Duty (Actos Jurídicos Documentados, AJD), a graduated charge that the buyer also pays, at a rate that depends on the autonomous region.

An important nuance: the second and subsequent transfers of buildings are usually exempt from VAT. In that case ITP would apply, unless the exemption is waived where the requirements are met. That is why it is worth checking with your adviser, before signing, which regime applies.

Example with round numbers (assumed rates, check the one for your region): a €200,000 property bought from a private individual with ITP at 6%: €12,000 in tax. If a company sells it with 21% VAT and 1.5% AJD: €42,000 in VAT (recoverable if your activity entitles you to deduct it) and €3,000 in AJD, which is a cost.

Municipal capital gains tax and IBI: the town hall’s taxes

The municipal capital gains tax (plusvalía municipal, formally the Tax on the Increase in Value of Urban Land) charges the increase in the value of the land during the time the seller has owned the property. In a sale, it is paid by the seller. Since the 2021 reform it is calculated either by an objective method or by the actual gain, whichever is more favourable, and nothing is due if there was no increase in value. For transfers between living persons, the filing deadline is short, so it’s best not to leave it until the last minute.

IBI (annual property tax) accrues on 1 January and is legally owed by whoever owns the property on that date. In practice, buyer and seller usually agree in the deed to split it pro rata by the days each of them owned the property. Two precautions for the buyer: ask for the latest receipt and a certificate confirming there are no outstanding debts, because the property is liable for unpaid taxes even if they weren’t yours. Also check in the deed who bears each payment.

What gets capitalised in the books

Spain’s General Accounting Plan requires fixed assets to be recorded at their acquisition cost, which includes all the expenses necessary to get them ready for use, such as notary fees, registry fees, ITP or AJD. Practical steps:

1. Deductible input VAT: not capitalised. It goes to the Treasury input VAT account and is settled on form 303. Only if the VAT is not deductible, in whole or in part, does it increase the cost of the property.

2. ITP and AJD are capitalised as an addition to the property’s value, together with notary, administrative agent and registry fees.

3. Separate land and building. Land is not depreciated, only the building. A reasonable split, supported by the cadastral value or a valuation, avoids problems with depreciation.

4. IBI is an expense of the year (taxes), not capitalised. If you pay the seller’s pro rata share for the period before the purchase, review it with your adviser, since it is usually treated as part of the agreed price.

5. Municipal capital gains tax is not booked by the buyer. For the seller it is an expense linked to the sale and forms part of the result of the transaction.

Common mistakes: capitalising deductible VAT as a cost, forgetting ITP or AJD in the value of the asset, depreciating the land, or signing without knowing whether the sale is subject to ITP or VAT.

At Zythos Business we review this kind of transaction before signing. We check the VAT or ITP regime, estimate the total tax cost and set up the accounting properly: capitalised cost, land-building split and depreciation. That way, a major purchase for your sole-trader business or SME doesn’t turn into a tax problem later on.