Despite stringent licensing, you can still rent your holiday-home to tourists in the Balearics if you go about it the right way. But there are important tax implications to bear in mind. Will Besga explains.
By Will Besga, Lawyer at Mallorca Law.
The Balearics have stringent laws that limit tourist rentals, and in previous articles like ‘Short-term rentals and holiday-lettings in the Balearics under the new Tenancy Act‘ and ‘Tourist rental licences in the Balearics explained‘ I have shown how you can perfectly legally engage in holiday-lettings without a licence if you are careful about how you advertise your property, and the rental contract you offer. The trick is to use an “ordinary” rental arrangement, not a “touristic” arrangement, and in this article I want to highlight the tax implications of both.
First of all, a bit of background. In the Balearics you need a licence to engage in “touristic” rentals, and the regional government is no longer giving licences for apartments, only for detached homes and semis. Touristic rentals have certain costs and obligations, as explained in previous articles.
However, whatever kind of property you own, with or without a tourist licence, you always have the option of engaging in what I call an “ordinary”, short-term rentals. All you have to do is have the appropriate contract, and follow some operational guidelines. The decision will impinge on your needs, and on the differences between short-term touristic rentals and short-term ordinary rentals.
Touristic Rentals in the Balearics
In a touristic rental, you are compelled by law to charge your tenants VAT at 10%, and this has a number of consequences.
If you charge VAT, then you have to pay it back to the treasury, and you do so by doing quarterly VAT returns.
In addition, if you are a non-resident, you should also file income tax declarations on a quarterly basis, not just annually, which you are still obliged to do. Bear in mind that for both residents and nonresidents, certain specific costs can be deducted from the taxable amount (the revenue from the rentals) and VAT can also be offset, with the effect of reducing the amount of taxes paid.
Ordinary Rentals in the Balearics
By contrast, a non-touristic or ordinary rental does not incur VAT, and therefore there are no quarterly declarations of VAT or income tax to be made. The actual profit (because costs can also be offset) is accounted for in a general annual income tax declaration, either a resident of a non-resident one.
Implications for Rental Agents
The situation, however, changes in ordinary rentals if you are managing them as an agent, that is, if you are managing for example a number of apartments on behalf of their owners.
A short-term ordinary contract has to be made, in amongst many other things, between tenant and landlord. Since you are an agency, however, you should be invoicing directly to the tenant a percentage of the rental price, and this percentage has to be invoiced with VAT, as it is your agent’s fee.
At the same time, the landlord obtains the rest of the rental price in its totality without charging VAT. Yet the fact that the agent’s cut requires VAT means that you, as an agent, will be doing quarterly VAT declarations.
In addition, because you are an agent, you must be established as a company or as an autónomo (sole trader). If you are, you have to also do income tax declarations every quarter, plus of course the annual one. Furthermore, because the contract is between landlord and tenant, and the agent has to invoice the tenant his booking fee, this type of arrangement should involve a double contract, but that is for another article.
As you can see, then, touristic and non-touristic rentals are operationally different because of the VAT implications, but these differences disappear once VAT is brought into the equation in non-touristic rentals by way of the ‘booking’ fee.
Often, however, the decision as to the type of rental that we should do is taken for us: If you don’t have a house or a semi, then you have no choice: as we know, you can only offer “ordinary” rentals.
But if you have a house or semi, and can get a touristic licence, you may be better of with a “touristic”, licensed contract, if your clients expect you to offer some services. That means quarterly VAT payments and declarations. The choice, in this case, is yours.
Holiday / Tourist Rental Regulations in the Balearics
Links to the original Balearic legislation in both English and Spanish: