Trying to understand new VAT rules
I am at a loss about what the new VAT provisions are all about. We have read the law over and over again and have attended one lecture after another on the subject given by one of the international auditors, but we still cannot profess that we understand fully the provisions. What we are somewhat clear about (not 100%) and a subject which may be of particular interest to foreign residents regarding rentals and land purchase is as follows:
Residential properties let out will not bear a VAT (+19%). Commercial properties if let post to 2018 will bear the VAT charge unless the landlord declares upfront that he does not wish to have this charge. No major harm done, but if VAT is charged, it is so only if the tenant is a VAT registered, so that he can claim the VAT back.
The law refers to the exemption of the residential units but there is a confusing proviso that the property is not to be placed into “an economic activity”. So, what does this mean? If a house is let as holiday/seasonal/ daily let and/or on a AirBnB is this not a business activity, be it a residence? If my understanding is correct, VAT should be charged, increasing the rental by 19% (will this not put off prospective season tenants who are not VAT locally registered?).
Buying a building plot will bear a 19% VAT charge if bought from a person/owner who is dealing with development/real estate business. So, two adjoining plots are for sale, one from a developer and the other by a private individual who does not do this (sale of plots) as a business, the second plot will be 19% cheaper from the first.
Confusion is going on, however, if a private individual sells a plot without VAT situated within an area where nearby a developer is selling similar plots with VAT, then the VAT authorities might charge the private seller also with VAT for “avoidance” of unfair competition”.
Bearing in mind (be it not clear) that in case VAT is paid by the buyer, he will not be liable for the transfer fees (so out of the 19% charge a reduction by approximately 4% transfer fees = net cost 15%).
If someone buys a plot in shares (e.g. a company owning the plot) no VAT is charged.
Because developers will sell you a plot with a 19% VAT, but then they can claim it back, they will be in a more competitive position than a private individual who will pay the 19% with no refund. So if one appoints the same developer who sells you the plot to build your house with a total VAT charge of 5% (main residence) will he be in a more competitive position than building yourselves your home?
Even those consultants who conducted the lectures did not fully understand the problem as they have no answers to all the questions and it will take a while, say a period of at least 6-8 months, to clear the situation.
The VAT authority says any enquiry should be addressed to it for clarification. Bearing in mind that the Governmental Departments do not answer within the same day, but more likely in 2-3 months, what happens in the meantime? Will the seller hold back the property until the authorities decide? If then there is a sales contract and no VAT is charged what will the situation be if the VAT authority decides afterwards that the 19% should be charged?
Nobody knows at the end what is happening and the situation is not clear also regarding agricultural land with the only clear exemption for certain categories (agricultural zones, Natura areas etc).