Spanish Local Taxes: ICIO and Municipal Capital Gains Explained

Tax on Construction, Installations and Works (ICIO)

Regulated in Articles 100 to 103 of the Law Governing Local Government Finances, this tax grants levy authority to the City Council (meaning the Council decides whether to collect it).

Key Elements of the ICIO Tax

Taxable Event

The **Taxable Event** is the execution of construction, installations, or works that require a building or urban planning permit. The City Council responsible for taxation is the one in whose municipal territory the work is performed.

Accrual (Vesting)

Accrual occurs at the time the construction starts, even if the required license has not yet been obtained.

Taxpayers and Substitutes

• The **Taxpayer** is the owner of the work, even if they are not the landowner.
• Regarding **Substitutes**: When the taxpayer does not perform the work directly, the substitutes will be the person requesting the license and the person performing the work.

Taxable Base and Rate

The **Taxable Base** is the real and effective cost of the work, identified with the execution cost of the material. The tax base specifically excludes:

• Professional fees (architect and surveyor).
• Industrial or business profit.
• VAT and excise taxes.

The **Tax Rate** determination is the responsibility of the City Council, within a maximum ceiling of 4%.

Tax Management: Settlements

Tax Management involves distinguishing between the provisional settlement and the final settlement.

Provisional Settlement

The *provisional settlement* is issued at the time of granting the license or at the start of work, based on the estimated budget of the work.

Final Settlement

The *final settlement* is issued once the work is complete, following verification by the administration of the real and effective cost of the work. This may lead to an additional fee or an amount to be refunded. The Council may also require the tax through self-assessment.

ICIO Calculation Example

1. **Provisional Settlement:** 4% of 1,000 = 40
2. **Final Settlement:** 4% of 1,500 = 60
3. **Adjustment:** 60 - 40 = 20 (Additional fee due)

Tax on the Increase in Value of Urban Land (IIVTNU)

Municipal Capital Gains Tax (Plusvalía Municipal)

Taxable Event Requirements

The **Taxable Event** requires the concurrence of two elements:

1. The increase in value of urban land or property with special characteristics.
2. This increase results from the transfer of ownership or the constitution/transfer of a right of enjoyment.

Included Transactions

Included transactions cover both *inter vivos* (between living persons) and *mortis causa* (due to death) operations, whether they are for consideration (sale) or free of charge (donation or inheritance).

Land vs. Construction

When dealing with property, we must distinguish between the land (ground) and the building. This tax specifically excludes the value of the construction.

Accrual Date

Regarding **Accrual**:

• In the case of transmission of ownership, it occurs on the date of transmission.
• In the case of the constitution of a right, it occurs on the date the right is constituted.