There is no doubt that Europe continues to be the favourite destination for foreign buyers. Specifically, the countries of the Mediterranean area, such as Italy, Greece, Portugal and Spain, are the preferred options for foreigners when it comes to property investment. In addition, when buying a property in Spain, international investors opt to buy one or more properties for tourism purposes.
Despite the current uncertain economic situation, Spain continues to be one of the main attractions for foreign investment, which has increased notably in recent years.
However, the growing demand for the purchase of one or more properties to be used for tourist rentals, and thus obtain a good return, raises a series of questions for buyers that deserve to be dealt with by experts. At Imont Legal & Taxes, specialists in Real Estate Law, we would like to resolve all your doubts below:
Tourist apartment VS Housing for tourist use
The main question raised by the client is the difference between a tourist apartment and housing for tourist use and the possible compatibility of use and enjoyment by the client.
Well, if the buyer owns a tourist apartment, just the exclusive use of the property for short-term rental can be made, and not for residential use. On the other hand, if the investment is made in a house for tourist use, the owner is entitled to make residential use of the property with the possibility of short-term rental. Furthermore, in this case, the owner must comply with the statutes of the community to which the property belongs, as well as with the municipal housing ordinance of the municipality to which the property belongs.
How is the holiday house or apartment managed?
The international investor has different possibilities when it comes to the management of his property or holiday apartment, as well as the amount of tax to be paid in order to obtain the best profitability through renting. In this way, the owner can:
- Transferring or renting the house directly to the consumer.
- Lease the house to a third-party company (as a real estate company).
- Transfer the property to the tenant through a real estate agency that charges the owner for its intermediation or management.
In the first case, a distinction must be made as to whether the rental or transfer involves the provision of a hotel service or not. It depends on this whether the operation is exempt from VAT or not. If it is not, the owner must issue an invoice with VAT at the rate of 10% (the current rate applicable to hotel services).
What if the owner decides to rent out the property to a management company or real estate agency?
This option turns out to be more complex, as it presents two different activities or legal relationships: the first one between the owner and the real estate company – subject to VAT at the rate of 21 % and where the property manager has to withhold 19 % of personal income tax -; and the second one, between the property manager and the end user – two scenarios can occur with different VAT treatment depending on whether the real estate company provides hotel services or not -.
Finally, if the tourist accommodation is transferred to the tenant through a real estate agency, it is the owner who must issue the tenant with an invoice or receipt, which means that it is the owner who has a direct relationship with the tourist. Again, the transaction will be exempt from VAT whether or not hotel services are provided. In this last case, it should be clarified that the management company is in charge of finding the tenant and charging the property owner for these intermediary services. This real estate commission generates the obligation for the management company to issue an invoice, charging VAT at 21%.
What are the tax requirements for renting tourist apartments and houses in Spain?
In recent months, the Directorate General for Taxation (Dirección General de Tributos) has issued a series of rulings that directly link the existence of an economic activity of property rental with a Permanent Establishment in Spain.
There is no doubt that investment in the real estate sector in our country continues to be one of the growth vectors of the Spanish economy and one of the most attractive investment options for foreign investors. However, the profitability of real estate projects is linked, among other factors, to an efficient and stable tax system that offers investors security and peace of mind.
Therefore, in the case of the acquisition of tourist dwellings for rental purposes, the way in which the investment is carried out has a significant impact on profitability.
In practice, many foreign investors choose to set up one or more Spanish entities, which are responsible for acquiring the properties and then offering them for rent. In such a case, these entities are subject to Spanish Corporate Income Tax. Others, on the other hand, are more inclined to make the investment directly, i.e. without the prior incorporation of a Spanish company. Given this situation, the taxation of income derived from the rental activity is different depending on whether or not the taxpayer has a permanent establishment (PE) in Spain.
The legal and tax formalities involved in the purchase of a holiday home can be complicated and costly, but they are best handled and resolved with the help of professionals. At Imont Legal & Taxes, we have lawyers specialised in International Real Estate Law, who know these issues in depth and advise you with total professionalism.