It all comes down to the percentage of VAT you have to pay
Renting out property in Spain is currently one of the most profitable business activities, especially in places like Malaga or Marbella, where clearly tourism is boosting. Airbnb-like platforms which are based on reviews make it fairly easy to find guests for short stays. In fact, many landlords report to be making more money in a few days than if they decided to let their apartments on a monthly or long-term basis. But Spanish rental laws treat holiday lettings differently, depending on the type of services offered and on the way they are booked.
Laws for renting out property in Spain
A normal apartment in Spain which is rented for short periods is not subject to VAT. Value-added tax (IVA in Spanish) only applies when additional services, such as laundry, dining or regular cleaning, typically offered by hotels, are included. In such cases, the rental will need to be previously registered at the tax office (Hacienda) under the category “Alojamientos Turísticos Extrahoteleros” and 10% VAT will have to be included in your invoices.
But this is where it gets interesting: in many cases, landlords end up signing a sublease contract with an internet platform or intermediary agency, giving them the right to re-rent the property to a third party for touristic purposes. In this case, the Spanish tax system understands that the purpose of the rental is other than normal housing and, for that reason, VAT goes up to 21%. In the tax office, this type of rental must be registered under “Alquiler de Viviendas”. Whether you offer hospitality services or not does not influence taxation. The good news is, some related expenses can be deducted (e.g. repairs, consumption services).
If you are currently subletting your flat in this way, note that not only will you obliged to pay in 21% VAT every 3 months, but the property will also need to be acknowledged by the Registry of Tourism of Andalusia. As the landlord and owner of the property, you can get fined if you fail to register it properly.
ITP – the property transfer tax (impuesto de transmisiones patrimoniales)
Even if you are not obliged to pay VAT, there is tax type that applies to every rental property in Spain, that’s the so-called “property transfer tax” ( in Spanish “impuesto de transmisiones inmobiliarias). ITP tax must be paid at the beginning of the rental period through Form 600 and it’s the tenant’s duty to pay it. The tax amount is established according to the rental duration and it is relatively low (7,21 euros for a two-week rental worth 1,000 euros). ITP for long-term rentals is calculated on a regular 3-year period, which is the legal duration of a standard rental contract in Spain.
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Income tax and non-resident tax on Spanish holiday rentals
From 01-01-2021 and after finishing the transition period, the United Kingdom is considered a non-member country of the E.U. and regarding the rental incomes obtained in Spain, the owners will from now on start to be taxed from the 19% to the 24% . Besides, as Non Community owners, the rental expenses will not be able to be deducted, this means they will pay for the gross income. So, according to the current law, the fiscal situation for non resident British citizens in Spain is equivalent to the rest of non european citizens, raising their tax payments.
Perhaps a future agreement between Spain and the U.K. could improve the tax situation and go back to the pre-Brexit situation.
Since the rent will be considered as income, IRPF (income tax) will also needs to be declared. The way this tax is calculated in the case of property rental also depends on whether additional services are offered as mentioned previously. If the rental includes hospitality services, it will be treated as business activity and will be accordingly registered in the tax office as “actividad económica”, whereas plain rentals are understood as a return on property investment “rendimientos del capital inmobiliario”. Please note that regarding IRPF, the 60% tax reduction that applies to long-term rental cannot be applied for short periods.
Lastly, expats who rent out their property in Spain and haven’t registered officially as residents are subject to the IRNR (impuesto sobre la renta de no residentes).
The same classification is used here: if the rental is free from services, IRNR will be as high as 19% (24% for non EU-citizens, including Norway and Iceland), whilst with business-oriented it reaches 25%. Please note that IRNR is paid to the tax office on a quarterly basis, using Form 210.
At Tejada Solicitors, we are specialists in managing holiday rentals in Malaga, Costa del Sol and the rest of Spain, both from a tax perspective, but also as a property management firm, for the periods you spend abroad.
*The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues
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