The question arises at every first consultation, without exception. Sometimes even before discussing materials, layout or style: “Does my renovation carry 10% or 21% VAT?” It is understandable. In a 20,000 EUR project, the difference between one rate and the other is 2,200 EUR. Enough to add a custom backlit mirror, upgrade the tapware by two levels, or fully cover the design phase. It is no minor detail.
And yet, it is one of the topics where we encounter the most confusion. The regulations are not intuitive, exceptions are frequent, and there are grey areas that even industry professionals do not always navigate with ease. At Azulia we have learned to manage these nuances because they directly affect our clients’ budgets. This guide clarifies when 10% applies, when it does not, and — most importantly — how to ensure you are on the right side.
When the 10% VAT applies
The VAT Act (Law 37/1992) establishes that renovation and repair works on private dwellings are taxed at the reduced rate of 10% when all of the following conditions are met simultaneously:
1. Private dwelling. The property must be residential in use. It does not matter whether it is a first or second home, but its use must be residential. This excludes commercial premises, offices, warehouses and mixed-use spaces (with nuances we shall examine later).
2. Minimum age of 2 years. The property must have been built — or last undergone a full rehabilitation — more than two years ago. For most homes in Valencia, this requirement is comfortably met. According to data from the College of Architects of the Valencian Community, more than 85% of the province’s residential stock is over 20 years old.
3. Material costs must not exceed 40% of the total. This is the condition that generates the most misunderstandings. The cost of materials supplied by the company carrying out the works cannot exceed 40% of the total taxable base of the operation. The remaining 60% (at minimum) must correspond to labour, design, project management and other services.
4. The works are carried out by a company or professional. The reduced rate only applies when you hire a company or self-employed professional to execute the complete works. If you purchase materials separately and then hire labour independently, the materials carry 21% VAT and only the labour may qualify for 10%.
5. The client is a natural person. That is, a private individual. Renovations for companies or corporations are taxed at 21%, even if the work is carried out in a residential property.
When all five conditions are met, the full invoice — materials included — is charged at 10% VAT. It is a direct, automatic benefit that requires no prior application or additional paperwork.
When you pay 21%
There are clear situations where the standard rate is unavoidable:
New build. If the property is less than two years old since construction or last full rehabilitation, VAT is 21%. This affects buyers of new homes who wish to customise the bathroom before moving in.
Purchasing materials separately. If you visit a showroom, buy the porcelain, the tapware and the sanitary ware directly, and then hire an installer, the materials carry 21%. Only the labour invoice might qualify for 10%. It is a purchasing structure that is fiscally expensive.
Commercial property. Renovating the bathroom in an office, restaurant or commercial premises means 21%, with no exceptions.
Materials exceeding 40%. If materials represent more than 40% of the total in your estimate, the entire operation is taxed at 21%. This is particularly relevant in premium projects where high-end materials represent a larger proportion. But there is a solution, which we shall examine below.
Appliances and furnishings. If the renovation includes the installation of appliances (for example, a built-in washing machine) or non-fixed furniture, those items are taxed at 21% even within a 10%-rated renovation. The company must separate these items on the invoice.
Grey areas
The regulations are clear at the extremes, but real life has its edges. These are the cases that generate the most enquiries:
Second homes. Your beach apartment in Valencia? The 10% does apply, provided it is a private dwelling and meets the remaining conditions. It need not be your principal residence, nor must you be officially registered there.
Investment properties (rental). If you are a natural person and the property is let as a residential rental, the renovation may qualify for 10%. The key is that the invoice is addressed to you as a private individual, not to a company. If the property is in the name of a limited company, it is 21%.
Tourist apartments. This is where things become complicated. If the property holds a tourist-use licence and is registered as an economic activity, the Tax Agency has interpreted in binding rulings that it does not benefit from the reduced rate. However, if it is rented out for tourism only occasionally without a specific licence (P2P platforms), the situation is more ambiguous. We recommend an individual tax consultation.
Mixed-use spaces. A flat where you both live and have your professional studio. If the bathroom is exclusively residential in use, 10% applies. If it is shared use, the interpretation depends on how the activity is declared. It is one of those cases where five minutes with your tax adviser prevents problems later.
How to secure the reduced 10% rate
These are the practical steps to ensure your renovation is taxed at 10%:
Hire a company to carry out the complete project. Do not buy materials yourself. When the company supplies and installs everything, it is far easier to meet the 40% condition and the invoicing is clean. At Azulia, our full-project model includes design, materials supply and installation in a single proposal, which enormously simplifies the fiscal question.
Request a single, detailed invoice. The invoice should reflect all items: labour, materials, design, site management, transport, rubble removal. The more service items that are itemised, the easier it is for materials not to exceed 40%.
Verify the breakdown before signing. Ask the estimate to include the percentage that materials represent of the total. If it is below 40%, perfect. If it is right at the limit, it is worth reviewing. In our detailed estimates we always include this breakdown so the client has full visibility.
Keep the documentation. Invoice, accepted estimate, works contract and proof of payment. The Tax Agency may request this documentation up to four years later. It is not common, but having everything in order provides peace of mind.
What many do not know about the 40% rule
The 40% materials condition is the point where most premium projects find themselves in the risk zone. In a standard bathroom, materials typically represent between 30% and 35% of the total. But when we work with imported large-format porcelain, German or Italian designer tapware, and high-end sanitary ware, that proportion can rise to 45% or more.
Does that mean a premium bathroom must pay 21%? Not necessarily.
The key lies in how the estimate is structured — honestly, with real costs. A full design project includes items that are clearly services, not materials:
- Design and technical project (800 EUR - 2,500 EUR)
- Site management and coordination (included in the project or invoiced separately)
- Demolition and rubble removal (pure service)
- Waterproofing and surface preparation (predominantly labour)
- Electrical and plumbing installation (predominantly labour)
- Painting and finishes (mixed, but with a high service component)
When all these items are properly reflected in the estimate, materials rarely exceed 40% even in high-end projects. This is not about dressing up figures — that would be fraudulent and we categorically advise against it — but about faithfully reflecting the real cost of each project component.
A common mistake: companies that group everything into a few estimate lines (“full renovation: X EUR”) without itemising. That can raise questions in an audit. The more detailed the estimate, the more robust the fiscal justification. It is another reason why working with professionals who document every item — as we do in our projects — makes a difference.
If you already have an estimate and want to check where your project falls, our calculator includes an estimate of the applicable VAT based on typical material-to-labour proportions.
Frequently asked questions
Does the reduced VAT also apply to renovating a second bathroom in the same home? Yes. The renovation of any room in a private dwelling that meets the conditions (age, materials percentage, execution by a company) qualifies for 10%. There is no limit on the number of rooms or amounts per dwelling.
What if I buy the tapware directly from the manufacturer and the company then installs it? The tapware you buy directly is taxed at 21%. The installation may qualify for 10% if it meets the conditions. But by separating the purchase from the installation, you lose the fiscal advantage and also complicate warranty claims. It is always better for the company to supply and install everything.
Can my tax adviser confirm which VAT rate applies before I begin? Yes, and this is what we recommend. Furthermore, the Tax Agency offers a binding ruling service: you can present your specific case and obtain a legally binding response. The process takes a few months, so it is worth planning ahead. The Tax Agency website has all the information on how to submit a ruling request.
Are there any additional deductions compatible with the reduced VAT? Yes. The reduced VAT and the income tax deduction for energy efficiency are fully compatible. You can benefit from both on the same project. We have explained this in detail in our article on tax deductions for premium renovations.
VAT is one of those topics nobody enjoys, but it directly affects what you pay for your renovation. The 2,200 EUR difference on a 20,000 EUR project is real money — money you can put toward better tapware, better lighting or simply your financial peace of mind. At Azulia we ensure every estimate is structured so that you pay what is fair and not a cent more. Let us talk about your project and we will confirm exactly which VAT rate applies in your case. You might also like to look at what to expect from a high-end bathroom investment for the full picture.