This article is an outline of the way holiday-home rentals are taxed in Spain under current legislation (buy-to-let). I have simplified it to avoid unnecessary tax technicalities, and bear in mind that quoted tax rates are subject to change from one year to the next. Seek professional legal advice on your matter – see disclaimer below.
Holiday rental taxation in Spain
After a decade in the doldrums, Spain’s real estate market is once again picking up the pace showing indelible signs of warming up, spearheaded by Madrid and Barcelona. The market seems to be staging a comeback in full swing which is a welcome respite.
1. Asking rental prices are soaring by two digits year-on-year as reported by experts. The exact figure is contentious, as some prestigious media, like El Pais daily, quote a 21% annual increase whilst others, such as El Mundo daily, estimate the national average rental increase to be at 10.2%. In any case, minutiae aside, the consensus is clear and unanimous that we are witnessing a whopping two-digit rental growth in asking rental prices year-on-year:
- Rental prices smash boom-time records in six regional capitals led by Barcelona.
- Front-line beach rental prices up 10pc in a year.
- Rental asking prices rising fast say portals.
2. Capital appreciation of well-located real estate is also rising fast (in some coastal areas by two digits).
The average rental yield in Spain can be expected at 5% pa (dependent on location). If to that you also add the potential of capital appreciation, Spanish real estate is poised for combined two-digit gains over the next years easily winning alternative investments and paltry fixed returns in a context of historic ultra-low interest rates.
Bottom line, go bricks for the win.
Limelight on Spain – why is it such an attractive place to live (and invest) in?
Spain is the world´s third country to attract more tourism (trailing closely behind the US and France) with over 68 million tourists as compiled by the United Nations World Tourism Organization annual barometer. An all-year-round mild weather, beautiful unspoilt scenery, great food, friendly natives, modern health and transport facilities, amenities and a rich cultural background make Spain a touristic hotspot to be reckoned with.
And last, let us not forget Spain´s renowned beaches. For almost 30 consecutive years Spain has led the world-ranking of Blue Flags awarded by the independent Foundation for Environmental Education with over 561 in 2015 trumping its closest competitor. Blue Flags are only awarded after meeting stringent requirements and are an indication of their high environmental and quality standards.
It is in this financial context that investors are showing increasing interest in the potential of buy-to-let properties in Spain. A burgeoning real estate market coupled with a consolidated tourism industry is luring investors to foray into the market in droves with a renewed sense of self-confidence.
Holiday Homes – Definition
What exactly qualifies as a holiday rental home or vivienda vacacional in Spanish? Spain is made up of 17 autonomous regions with devolved competencies on this matter. Many of these regions have passed on their own laws on what is classified as a holiday rental home. You can read further on the matter in my article Holiday Rental Laws in Spain – Explaining the Latest Changes. As an example, Andalusia approved last year its own regulation: Andalusia’s Holiday Rental Laws (Decree 28/2016).
Basically, and take good note I am generalising, holiday rental homes are let for short periods of time which vary between one day up to several weeks. The main point is that they are not regarded as the permanent abode of a tenant which is referred to as ‘guest’ or ‘lodger’ rather than tenant (as opposed to long term lets). Take note that in this article I am expressly ruling out dealing with what are known as apartamentos turísticos or touristic lets which have their own regulation and set of rules.
Landlords would do well to acquaint themselves with the regulation of the autonomous region where their property is located in Spain as some of them have stringent rules in place which require the property to be registered in an official registry and other regions even go as far as demanding a tourist rental licence from landlords without which you simply cannot rent out. Fines for non-compliance vary, but we warned you could be landed with a steep six-figure fine or even having a charge placed against your property. Some regions, such as Barcelona, have taken the matter to heart with the town hall employing over forty inspectors trawling websites and doing the legwork to flag unlicenced holiday rentals and fine them. It is estimated there are 17,000 holiday rentals in Barcelona alone of which 7,000 are deemed illegal.
Holiday Homes – Registration
In Spain, most regional authorities require landlords to register their properties in a Tourism Registry. Requirements vary from one region to the next but in general a Licence of First Occupation is a chief requirement to let. Breach of these rules may attract humongous fines such as those levied on AirBnb in the hundreds of thousands.
Our law firm offers a Registration of Holiday Rental Homes service for flat fee.
Holiday Rental Homes – Taxation
Holiday rental homes are, by definition, short-term lets. Tenancies exceeding two months fall under Spain´s Tenancy Act and are regarded as long-term lets which give way to a great number of tenant entitlements landlords should be keenly aware of.
In Spain, all joint owners of a property are treated as individualised taxpayers. Landlords need to file a quarterly tax model 210 in the first 20 days of every January, April, July and October.
In other words, one tax model needs to be submitted for each (joint) owner and also one for each guest. By guest it is understood as the leader of the group, he who pays the rental (not for every person lodging in a group).
Short-term landlords will additionally also be required to file an annual tax model (Non-Resident Imputed Income Tax).
As a recap, on renting out in Spain (whether long or short term) you have to pay two taxes:
- Once a year: Non-Resident Imputed Income Tax by the 31st December of the following year. We offer this legal service: Non-Resident Income Tax (Fiscal Representation).
- Quarterly: you need to file every 3 months tax on the rental income. We offer this legal service: Holiday Rental Accounting Service (HRAS).
I) Resident in E.U. or E.E.A.
Tax rate: 19% on rental income.
Tax relief: Yes, physical persons may deduct, for example, home insurance, mortgage loan interest payments, property maintenance expenses etc. Legal persons may also deduct rental-related expenses.
Dates: collected annually or quarterly.
Tax form: 210.
II) Resident outside the E.U. or E.E.A.
Tax rate: 24% on rental income.
Tax relief: no.
Dates: collected annually or quarterly.
Tax form: 210.
As can be gleaned, this can become tedious and very admin intensive for the average landlord. Which is where lawyers step in offering our legal and accounting services to cut through the red tape for a very competitive fee.
More information in my article Non-Resident Taxes in Spain.
With or without VAT (IVA)?
In principle, as a general rule, VAT is not applied to holiday rental homes. However, if you offer any of the following below your rental may be regarded as assimilated to offering hotel accommodation in which case you need to invoice everything with VAT which impacts the profit margin of the business increasing its costs:
- Concierge service.
- Daily changing of bed linen.
- Daily changing of bath towels.
- Daily cleaning of property/room.
- Room service (food and beverage), catering.
- Bed & Breakfast.
- Other ancillary hotel services such as: daily press, laundry cleaning, luggage storage service, accommodation booking (holiday reservation).
Holiday Homes – Non-Resident Landlord Rental Tax Relief
Recent ECJ rulings have created in their wake new opportunities for (physical) non-resident landlords to take advantage of tax relief in equal footing to Spanish nationals which were previously barred to them.
Please read my two articles on the matter which clearly explain how landlords*, with the support of our law firm, can take advantage of tax rules greatly mitigating their tax bill:
Renting in Spain: Non-Resident Landlord’s Rental Tax Relief – 14th of January 2017
Renting in Spain – Landlord’s Taxation Guide – 21st of December 2016
*Non-EU landlord nationals are barred from benefiting from lenient tax relief.
Through our dedicated service Holiday Rental Accounting Service (HRAS) we are able to reduce – on average – 30 to 40% of a landlord’s taxable base on renting out property in Spain. Ask us.
Conclusions on tourist rental home taxation in Spain
As can be clearly surmised from the above, the taxation on private rentals may be somewhat convoluted given the fact that 17 different Autonomous Regions in Spain hold competence over them and rule accordingly. This requires the input of seasoned professionals to wade through the labyrinthian pitfalls and come out successfully.
Which is where we lawyers step in; hand-holding landlords and guiding them through the taxation ordeal to come up on top, working the system.
“90% of all millionaires become so through owning real estate.” – Andrew Carnegie.
Born in Dunfermline, Scotland, this 19th century Scottish self-made multimillionaire emigrated to the US at a young age. Carnegie led the expansion of the American steel industry in the late 19th century and through a string of savvy investments is often identified as one of the richest people and Americans ever. He will always be remembered for becoming a leading philanthropist for the United States and the British Empire giving generously to foundations, charities and university endowments.
Original article published at Larraín Nesbitt Lawyers: Spain Holiday Home Taxation
Legal services Larraín Nesbitt Lawyers can offer you
- Conveyancing – Buying
- Registration of Holiday Homes (Andalusia)
- Holiday Rentals Accounting Service (HRAS)
- NIE Number (Tax Identification Number)
Holiday home letting related articles
- Renting in Spain: Top Ten Mistakes – 8th of June 2011
- Let-to-Buy in Spain: The Smart Choice – 8th of April 2012
- Letting in Spain: The Safe Way – 10th of October 2012
- New Measures to Bolster Spain’s Ailing Rental Market – 8th of July 2013
- Tenant Eviction in Spain – 8th of June 2014
- Holiday Rental Laws in Spain – 8th of March 2015
- House Hunting in Spain – Interview with The New York Times. June 2015
- Taxes on Buying Spanish Property – 8th July 2015
- Non-Resident Taxes in Spain – 8th December 2015
- Resurgent Spain: Málaga Sees Strong Sales – Interview with Mansion Global (The Wall Street Journal). December 2015
- Holiday Rental Laws in Andalusia (Decree 28/2016) – 8th of February 2016
- Decree 20/2002: Andalusia’s Holiday Rural Rental Decree – 8th of April 2016
- Urban Rental Law in Spain – Spain’s Tenancy Act – 8th May 2016
- Buying Property in Spain – 10 Reasons to Hire a Lawyer – 8th November 2016
- Renting in Spain – Landlord’s Taxation – 8th of January 2017
- Renting in Spain: Non-Resident Landlord’s Rental Tax Relief – 14th of January 2017
- Buying Property in Spain from a Private Seller (Resale Property) – 21st of February 2017
- Buying Property in Spain from a Developer (Off-Plan Property) – 8th March 2017
- NIE Number Explained – 8th May 2017
- Community of Owners in Madrid to ban Holiday Rentals – 29th of June 2017
- Holiday Home Taxation in Spain – 8th of July 2017
- How to inspect an off-plan property overseas – Interview with The Sunday Times. July 2017
- Holiday Rentals in Andalusia Made Easy – 3rd July 2017
- Holiday-home lettings: Do NOT register with Andalusia’s Tourism Registry unless you are fully compliant – 21st of July 2017
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