If you've come this far, it's probably because you're thinking about building a new home on the island. Well, it's very important that you know in detail what taxes you'll have to pay for new construction in Mallorca. To make your investment as secure and transparent as possible, we'll tell you everything you need to know about taxes for new construction in Mallorca.
If this is your situation and you're also interested in reading and learning about building permits in Mallorca, we recommend you check out this article as well.
How is New Construction Taxed in Mallorca?
Taxes for new construction significantly increase the total cost of the project. In Mallorca, these are: the Construction, Installation, and Works Tax (ICIO) and the Value Added Tax (VAT). There are also other municipal taxes and local taxes that you should take into account.
The Tax on Construction, Installations and Works (ICIO) on new construction in Mallorca
This is a local tax levied on works, installations, and renovations that involve the construction of new buildings or substantial modifications to existing ones.
In the case of new construction, the ICIO is calculated based on the Material Execution Budget (PEM), which is the total estimated cost of the construction work. Generally, the PEM excludes VAT, professional fees, and other indirect items.
The ICIO varies between municipalities. That is, each city council can set its own criteria for the ICIO. For example, in Palma de Mallorca, the ICIO rate is typically around 2.5% to 2.61% of the construction budget.
Depending on the city council, you may be able to benefit from discounts by incorporating energy efficiency measures into your project.
VAT on New Construction in Mallorca
The Property Transfer Tax (ITP) is only applied to the purchase and sale of used properties. When a new-build home is sold, VAT is the tax applied. In Spain, the standard VAT rate for new-build homes is 10%. However, in some cases, such as for social housing, there is a reduced rate of 4%.
Additionally, you should know that VAT is paid progressively as the project progresses, through partial payments.
Other Municipal Taxes for New Construction in Mallorca
In addition to the two major general taxes, you'll also need to consider the cost of building permits in Mallorca. These are basically:
- The fee for issuing the planning permit, which usually depends on the size and cost of the project.
- Municipal capital gains tax, which applies only to sales transactions but can be significant if there is a significant increase in the value of the land.
- The Real Estate Tax (IBI), which depends on the property's cadastral value and is paid annually.
Are there tax breaks for new construction in Mallorca?
The short answer is yes. Here's what they mean:
Discounts at the ICIO in Mallorca
Some municipalities in Mallorca offer discounts on the ICIO if the project incorporates sustainable or energy-efficient measures.
VAT Deductions for New Construction in Mallorca
As mentioned above, the VAT rate for new construction is 10%, but reductions can be applied to social housing, which applies a reduced rate of 4%.
Other Incentives
If your new construction project includes highly energy-efficient solutions—such as solar panels, geothermal systems, or insulation improvements that exceed the requirements of the Technical Building Code (CTE)—you may be eligible for state or regional aid or bonuses.
In addition, some financial institutions, generally in collaboration with state or European programs, offer advantageous lines of credit for sustainable construction projects, which fall under what is classified as "preferential financing."
We are your Trusted Construction Company in Mallorca.
In short, taxes for new construction in Mallorca are an essential cost that must be taken into account and incorporated into any construction project. Remember that the two most important taxes are: the ICIO (Property Tax), which is calculated based on the Material Execution Budget; and VAT, which is gradually applied as the project progresses. Don't forget municipal taxes such as fees for applying for a building permit, the IBI (Property Property Tax), and the capital gains tax.
We recommend that you plan appropriately regarding construction taxes in Mallorca.
At Armalutx, we have been building for more than 50 years new construction home in Mallorca. If you're interested in starting a new construction project, contact us today and request your personalized quote. We'll be happy to answer any questions you may have about new construction taxes in Mallorca.
