The application of VAT in the construction industry is complex and often subject to varying interpretations. Recently, the Cabinet approved a draft of the Unified VAT Text, which aims to simplify existing regulations. This article outlines the conditions necessary for utilizing the reduced VAT rate and provides
practical guidance to avoid common mistakes.
10% VAT rate for construction projects
The 10% VAT rate for construction-related works is governed by Table A of DPR 633/1972. This rate applies to all maintenance work conducted on residential properties, whether through contract agreements or service contracts. It is important to note that this reduced VAT rate applies to any property designated for residential use, regardless of whether it is classified as a primary or secondary residence.
Luxury properties and ancillary structures
In addition to primary residences, high-value properties categorized as A/1, A/8, and A/9 also qualify for the reduced rate. Maintenance on ancillary structures is subject to the same tax regulations as main properties. This means that renovations on garages or cellars can also benefit from the 10% VAT.
Ordinary and extraordinary maintenance
A key consideration is the application of the reduced rate to ordinary maintenance tasks. According to guidance note No. 11 issued on November 9, 2026, by the Revenue Agency, the
10% rate applies to both ordinary and extraordinary maintenance, as well as restoration and renovation works specifically for buildings primarily designated for residential use.
Types of eligible interventions
Ordinary maintenance includes minor repairs and efforts aimed at keeping existing technological systems operational. Importantly, there is no distinction between contractual agreements for labor and those that involve the provision of goods with installation services; the reduced VAT rate applies equally to both types of contracts.
Direct purchase of goods and significant assets
When discussing finished goods used in construction projects, it is essential to differentiate between direct purchases and supplies under a contract. The reduced VAT rate applies only when goods are supplied as part of a contract; otherwise, direct purchases of items such as plumbing fixtures or windows are subject to the standard 22% VAT rate. However, for restoration and renovation projects requiring a SCIA, a reduced rate is available even for direct purchases.
Tax regime for significant assets
Many items used in construction fall under the definition of significant assets, such as elevators and boilers, where the reduced VAT rate applies solely to the difference between the total cost of the service and the value of the assets themselves. For example, if a total intervention costs 10,000 euros and 6,000 euros pertain to significant assets, the reduced rate will only apply to the remaining 4,000 euros.
Liabilities and declarations
It is vital to emphasize that the responsibility for correctly applying the reduced VAT rate lies with the seller, even if the client provides a declaration regarding the intended use of the goods. During tax audits, authorities may verify whether the conditions for applying the reduced rate are met. If discrepancies arise, tax recovery will be directed towards the seller.
To effectively utilize the 10% VAT rate in the construction sector, understanding the criteria for application and the responsibilities of all parties involved is essential. Proper preparation and a thorough comprehension of regulations can prevent errors and ensure optimal use of tax incentives.