The Construction, Installation, and Works Tax (ICIO) is a municipal and indirect tax that applies to the execution of construction works, installations, or projects within the municipal boundaries, which require urban planning permits, a responsible declaration, or prior notification. Although the tax is regulated in Articles 100 to 103 of the Consolidated Text of the Local Finance Law (TRLRHL), it is the tax ordinances of each municipality that set the tax rate, discounts, and other practical aspects for its settlement. Therefore, it is essential to review the relevant municipal ordinance before starting any works.
When and how is the tax paid?
The ICIO tax arises when the construction, installation, or project begins, even if the corresponding permit has not yet been granted.
Payment is required by the municipal council through a provisional settlement or a self-assessment (completed by the taxpayer themselves), based on the initial budget of the construction works.
If changes occur during the project that require an adjustment to the initial budget, or once the works are completed and the actual costs are verified, a supplementary settlement/self-assessment must be made to reconcile any differences.
Although municipal ordinances generally stipulate that the taxpayer must make these supplementary settlements (self-assessments) voluntarily, the municipality reserves the right to conduct a review (known as an ICIO inspection). In this case, the municipality can alter the taxable base and issue a final settlement.
Who is the taxpayer of the ICIO tax?
The owner of the construction, installation, or project, meaning the person who bears the costs or expenses of the construction, works, or installation (usually the developer). However, other individuals, such as those applying for permits or carrying out the works, can also be considered substitute taxpayers.
If the “owner of the works” changes during the project, the final settlement will be required from the person who is the owner at the completion of the works.
How is it calculated?
- The taxable base is made up of the actual and effective costs of the construction, installation, or project. For the calculation, the material execution costs are taken into account, which include:
- New construction of buildings
- Renovations and rehabilitations
- Necessary labor
- Costs of installations, equipment, and machinery (including their installation) included in the execution project and integrated into the building to provide essential services for its habitability or use (electricity, plumbing, sewage, elevators, air conditioning, etc.)
Therefore, elements that are inseparably linked to the work and necessary to fulfill the purpose of the carried-out measure must be included.
- The applicable tax rate is set by each municipality, with a maximum allowed rate of 4%.
- Additionally, municipalities may grant discounts, such as incentives for accessibility works or energy-efficient systems.
Which items are NOT included?
- Value Added Tax (VAT) and other equivalent taxes.
- Municipal fees and public charges related to the construction site.
- Professional fees (architect, project manager, etc.).
- Costs of machinery, mechanical installations, or equipment whose installation does not require a building permit or urban planning authorization (e.g., “split” air conditioning units that are separable from the building).
- Security and health costs not included in the material execution.
- Industrial profit of the contractor or construction company (business margin).
The exclusion of industrial profit is a frequent subject of practical controversy. While some municipalities try to include it in the calculation based on their own criteria or approved budgets, the most widely accepted interpretation for tax purposes is that ICIO should only tax the actual and real execution costs, not the contractor’s profit margin.
For personalized advice on ICIO and other local taxes, our team of specialists at Joan Cerdà is at your disposal.