A. You are right although the law establishes limits to the application of the reduced VAT (7%).
According to VAT Act, if the builder provides himself the materials with a cost of more than 20% of the tax base (effectively the total cost of the work), then the builder will have to issue invoices with a VAT of 16%. The law deems this contractual relationship as one of provision of goods, as opposed to the case where the cost of those materials is under 20% of the overall cost of the works, in which case the law will consider the dealing to be a provision of services, and therefore subject to reduced VAT.
The renovations will also be taxed at the reduced rate of 7% if the cost of the works is at least 25% (or more) of the purchase cost of the building where the purchase took place within the last two years. If the purchase was done before, then the 25% limit applies to the real value of the property. The law defines renovations as those works done with the aim of reconstructing buildings, by means of consolidation and treatment of foundations, main structures and facades.
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