On other occasions we have commented on the income taxation of property rentals, but what about the VAT treatment? Although it may seem a peaceful question, the VAT treatment of a property rental operation is not always unanimous.
First and foremost, it is important to analyse the intended use of the property in order to be clear about the treatment to be given in each case. Thus, the following alternatives can be distinguished:
Premises for use as premises
If you have a building used as premises such a leasing operation will be subject to and not exempt from VAT at the standard rate (21%).
In addition, Article 5 of the VAT Law expressly states that the following shall be entrepreneurs for VAT purposes ".lessors of goods"Therefore, if a private individual owns a property which he rents out as business premises.If you are a taxable person for VAT purposes, you should note that you automatically become a taxable person for VAT purposes, being obliged to charge VAT and submit the corresponding periodic VAT returns (form 303).
Residential property
the leasing of "buildings or parts thereof intended exclusively for residential use'. And, included within the exemption is both (i) garages and annexes ancillary to dwellings such as (ii) furniture inside the dwellingprovided that they are leased together with the dwelling itself with those
In other words, that provided that the property is used exclusively for residential purposes, such rent is exclusive of VAT.. Consequently, a private individual who rents a property to a third party would not be obliged to issue an invoice or charge VAT and would therefore not have to submit quarterly VAT returns.
However, it should be noted that the law regulates some exceptions to this VAT exemption which do not apply in certain cases, including, among others:
- Residential tenancies where the landlord also lends "...".any of the complementary services typical of the hotel industry, such as restaurant, cleaning, laundry or other similar services".
- Leases of buildings or parts of buildings to be sublet.
VAT on the leasing of employee housing by companies
However, the question has often been raised as to what happens when an agreement is signed. rental contract for housing with a company that is going to use it as housing for its employees.
Historically, it was considered to be a rental subject to and not exempt from VAT because the Directorate General of Taxes understood that, as the "tenant" was a company, it was impossible for it to be used as the tenant's home.
In particular, the administration argued that lhe exemption from VAT law "is not of an objective nature, but of a finalistic nature, which has ahe possible application depends on the use of the building.The following are mandatory the exemption when the actual purpose of the contract is for housing, but not otherwise, i.e. the lessee of the property must use the property as a dwelling; we consider it appropriate to declare that the lease under consideration will be exempt under the following circumstances or conditions:
However, the Central Economic-Administrative Tribunal finally unified doctrine in its Resolution dated 15 December 2016The application of the exemption will depend on the purpose of the property, which is to be determined by the terms of the contract to be signed between the owner of the property and the lessee company.
Thus, if in the clauses of the lease agreement entered into, it is expressly stated that the property is to be used solely and exclusively as a dwelling for one or more specific natural person(s). (employees, managers, etc.), so that subsequent subletting to outsiders is prevented and subletting or transfer of the dwelling is not permitted, VAT exemption would apply.
Otherwise, if the contract itself does not designate the tenant as a natural person If the property is to be used as a dwelling or is to be subsequently transferred, the exemption of Article 20.Uno.23 of the VAT Law would not apply to the rental of a dwelling, VAT at the general VAT rate of 21%.
VAT on properties for tourist rental
Consultations have also been held on the VAT taxation of the rental of flats for tourist purposesThe type of housing is, in a way, similar to the accommodation service provided by hotels.
The Directorate General of Taxes has clarified the issue, distinguishing when it should be assimilated to a hotel service and when it should not. Thus, in its consultation v1408-17, of 5 June, among others, it determined that depending on the building's intended use which is leased and of ancillary services to be providedThe VAT exemption shall apply whether or not the property is intended for residential use.
In particular, it states that, if, in addition to the actual rental of the property, complementary services typical of the hotel industry are provided, "...".such as restaurant, cleaning, laundry or similar services', then the VAT exemption does not apply, and this insofar as these services constitute a normal complement to the accommodation service which goes beyond the mere provision of a property.
And, the DGT clarifies in this respect that:
"In other words, the activity of accommodation is characterised, in contrast to the activity of rental accommodation, by the fact that it normally involves the provision of a series of services such as reception and permanent and continuous customer service in a designated space, regular cleaning of the building and the accommodation, regular change of bed and bath linen, and provision of other services (laundry, luggage storage, newspapers, reservations, etc.), and sometimes food and catering services.
In particular, the following are considered to be complementary services specific to the hotel industry:
-Cleaning service of the interior of the flat provided on a weekly basis.
-Linen change service in the flat provided on a weekly basis.
On the contrary, the following are not considered complementary services The following are specific to the hotel industry:
- Flat cleaning service provided at the arrival and departure of the period contracted by each tenant..
- Service change of clothes in the flat lent to at the entrance and exit of the period contracted by each lessee.
- Service cleaning of the common areas of the building (doorway, stairs and lifts) as well as the urbanisation in which it is located (green areas, access gates, pavements and streets).
- Services of technical assistance and maintenance for possible repairs plumbing, electrical, glass, blinds, locksmiths and household appliances".
This means that if we are dealing with the usual case in which the owner of the property rents the flat for tourist purposes and where only cleaning and linen change service is provided with the change of tenant.The renting of the property, the handing over of the keys and regular maintenance of the property, and the provision of no other additional services, is a general rental of a dwelling, and the renting of a property without the provision of additional services. the transaction is exempt from VAT.
On the contrary, if in addition and complementary to the rental of the property itselfThe hotel provides regular cleaning, linen change, laundry, catering, etc. services, similar to those in the hotel industry, would be similar to the service provided by a hotel and, consequently, VAT would be charged the service of renting accommodation, since it is considered to be a service identical to that provided by a hotel
As can be seen, there are many situations that can arise when renting a property and it is necessary to seek advice beforehand in order to avoid unnecessary tax risks.
