Data Shows Spanish Building Industry to Grow 4% Annually

Data Shows Spanish Building Industry to Grow 4% Annually

Crain's have returned to the Costa de Sol which is all positive 

Bloomberg describes the Madrid skyline as being a forest of cranes. While the capital of Spain is still nothing compared to the forest of cranes Dubai once was, there is definitely a noteworthy amount of building work happening around the city.

The Spanish construction industry is back and better than ever. The number of new builds in 2013 fell off a cliff, dropping 96% compared to the peak of 2006. Not many would have predicted that it would take just four years for the industry to be full of cash and confidence once more.

Data from the Ministry of Public Works shows that the building industry – which includes constructing new homes and offices – is set to grow 4% annually through 2020, with a 5% increase expected in just Madrid.

The benefits of the stable real estate industry are being felt outside of Madrid as well. Building sites are propping up all over Spain, with data from Bloomberg showing a small but steady increase in construction.

Building activity is beginning to reflect the Spanish economy, which itself is expected to rise by over 3% for the third year running. The data shows a positive trend where projects are quickly replacing one another and leading to constant activity. The building industry appears to be making up for lost time.

Additional data from the College of Property Registrars in Spain shows that property sales for new homes in Madrid and Catalonia has increased 10% for the first quarter of 2017, almost identical to the growth in resale properties. The fortunes of the two sectors are connected, even though new build activity typically follows the trends in resales – a trend that is particularly true for the Costa del Sol, where new build activity has picked up significantly in the past 18 months.

Felix Lores, an economist with BBVA Research, believes Spain has learned their lesson from the last property boom. This time the recovery is being anchored on sustainable models of consumption and exports rather than on the bubble of short-term credit.

This represents a significant difference from what happened in the past. It’s expected that the annual increase for new home constructions in 2017 and 2017 will be over 6%. Typically a surge in construction activity would lead to an increase in GDP, which relied on the property sector. This time things are the other way around.

How to offset VAT while purchasing and building properties in Spain?

How to offset VAT while purchasing and building properties in Spain?

Also known as IVA in Spanish, VAT Tax in Spain accounts for 21% of the expense. Read on to know more about how to save up on VAT when you are purchasing or building on urban properties in Spain.

To give you more clarity on the topic, Adolfo Martos Gross, an expert from GAM Abogados, one of the premier law firms with bases in Malaga and Marbella, discusses about VAT in depth.

VAT in Spain is 21%

Adolfo says that whenever there is a transaction involving a Spanish individual or resident, there is VAT levied irrespective of the buyer. However, if the buyer is a company or a professional developer registered in Spain, they can offset the VAT amount paid against the VAT they are supposed to levy on the sale proceeds of the same financial year.

In simple terms, if the VAT amount they have paid to tax authorities is more than the total VAT they have collected from sales; they can ask the Spanish Tax Agency or Hacienda to refund the excess amount they have paid.

However, Hacienda on receiving a tax return claim will first check for the records of the taxpayer and check to see if it is an individual or a company. If they are suspicious that the company has no real business and is just claiming to save amount paid on VAT, they will order an inspection. Please note that if the chances of ordering an inspection increases with the amount of refund claimed for, said Adolfo.

As an alternative, the taxpayer can also retain the excess VAT paid to the tax agency and it can be used as a tax credit for a period of up to 4 years from that financial year and can be adjusted in the subsequent years.

For property developers, if the owner of land is a resident from Spain or company, the invoices issued for building work undertaken by construction firms or contractors is also subject to VAT. However, there are different provisions available.

Usually, the seller in all transactions is liable to pay VAT to the agency and the buyer is expected to pay the VAT over the sale price of a product.

If the construction is undertaken by another company than the owner, the VAT to be charged stands reduced to 10%, instead of the usual 21%. However, this will make the developer liable for charging and paying the VAT to the agency.

Usually, when the contractor or construction firm charges VAT on an invoice, the developer can withhold the VAT amount and claim it as ‘IVA repercutido’ during the same quarter and the amount should be affset as ‘IVA soportado’.

This situation is advantageous to all new offplan developers in the Costa del Sol and has several benefits when cash flow is considered.