VAT on holiday homes

Due to the recent surge in the number of software platforms dedicated to the provision of intermediary services in tourist rentals conducted by individual entities, in addition to the new tax requirements these intermediary companies need to meet, we thought it would be appropriate to provide a summary of the tax issues applicable to this type of rental, with a special mention of Value Added Tax.

This type of operation was not particularly common not so long ago, and almost all such activity was conducted by hotel establishments. However, the appearance of this type of platform has enabled many people to rent homes for holiday purposes. This has resulted in these operations becoming one of the priorities of the fraud control plans executed by the Tax Authorities.

We will now provide a summary of the different circumstances involved in the renting of tourist or holiday homes and the applicable VAT rate in each of these cases:

1. A) If the owner rents the home and undertakes to provide the tenant with hotel-type services during their stay, the rental will be subject to VAT at a rate of 10%. This means that the owner will need to issue the corresponding invoice and submit quarterly tax declarations.

These services are, mainly, the following:

• Reception and permanent and continuous care for the client in an area designed for the purpose.
• Cleaning of the property and change of bed and bathroom linen on a regular basis (at least once a week).
• Laundry service.
• Food and catering services.

1. B) If the owner rents the property without any commitment to provide additional services to the guest during their stay, the rental will be subject to but exempt from VAT. Consequently, the owner does not need to issue an invoice or submit quarterly tax declarations in connection with this tax.

However, the owner may provide certain additional services during the stay and between one rental period and another, which will not affect the exemption of the VAT on the rent, including:

• Services involving the change of bed and bathroom linen or cleaning services provided immediately before and after the period rented by each guest.
• Maintenance of the pool and garden.
• Payment of utilities by the owner.
• Services involving the cleaning of the common areas of the building, as well as the complex in which it is located.
• The delivery and collection of the keys on the arrival and departure of the guest and a 24/7 telephone customer service.
• Technical support and maintenance services involving the repair of plumbing or electrical installations, windows, blinds, locks and household appliances.
• The equipment provided in the home and amenities required for the stay (sheets, towels, kitchenware, television, Internet, swimming pool and air conditioning).

1. C) If the owner rents the property directly to a company that, in turn, rents it to different tenants, the operation will be subject to VAT at the rate of 21%. As such, the lessor will need to issue the corresponding invoice and submit quarterly tax declarations for VAT.
2. D) If, in addition to renting the property, the lessor provides services such guided tours, babysitting and transfers to railways stations or airports, these services will be regarded as additional services and will be subject to VAT at the rate applicable to each case, regardless of whether or not the rental is exempt from VAT in accordance with the terms specified in the previous items.

Moreover, we need to analyse what happens with the VAT incurred by the lessor in relation to the invoices received for the different goods and services acquired in relation to the properties rented, such as supplies, cleaning services and professional services involving the management of the intermediation between the lessor and the lessee.

The VAT incurred in these operations can only be deducted in cases where the rental in question is subject to VAT and this deduction can be included in the quarterly declarations submitted. On the other hand, if the event the rental is not subject to VAT, the amounts incurred will not be deductible.

With regard to Personal Income Tax, we should point out that income obtained from renting homes on a temporary basis where the property is not the tenant´s habitual home does not enjoy the 60% reduction applicable to long-term rents.

As can be seen, the tax requirements in relation to the rental can vary considerably in accordance with a number of factors and, as such, we need to take all these aspects into consideration at the time of planning to commence an activity of this nature.

Furthermore, with the recent creation of form 179, which individuals and entities providing intermediary services between owners and tenants of holiday homes (Airbnb, Booking, Windu, Homeaway) are required to submit on a quarterly basis, specifying the owner of the home, the status of the property, the number of days the home has been used for holiday purposes and the amount received by the owner, the tax controls over these operations have increased considerably.