Apartments and Dwellings Without Hotel Services – VAT Exemption

Apartments and Dwellings or Parts Thereof Leased Without Hotel Services. VAT Exemption.

Binding consultation 1781-17 of the Tax Agency, dated 10/07/2017, warns that the activity consisting of the leasing of dwellings or parts thereof for periods of time, without providing any services typical of the hotel industry and limited to making the dwelling available to the lessee, is considered exempt from VAT.

 

For your interest, we provide the full transcript of the consultation below:

BINDING CONSULTATION V1781-17. ISSUE DATE 10/07/2017.

DESCRIPTION OF THE FACTS:

The applicant owns two apartments intended for lease without providing complementary services typical of the hotel industry.

QUESTION RAISED:

Exemption from Value Added Tax.

FULL RESPONSE:

“1.- In accordance with the provisions of Article 4, paragraph one, of Law 37/1992, of December 28, on Value Added Tax (BOE of December 29), the following are subject to the aforementioned tax: ‘the delivery of goods and provision of services carried out within the spatial scope of the tax by entrepreneurs or professionals for consideration, on a regular or occasional basis, in the development of their business or professional activity.’.”

Paragraph two, letter b) of the aforementioned Article 4 declares that ‘transmissions or assignments of use to third parties of all or part of any of the assets or rights that make up the business or professional assets of the taxable persons, including those carried out upon the cessation of the economic activities that determine subjection to the Tax, shall be understood as being carried out in the development of a business or professional activity.’.”

Furthermore, Article 5, paragraph one, letter c), of the same Law expressly grants the status of entrepreneur or professional to ‘those who carry out one or more deliveries of goods or provisions of services that involve the exploitation of a tangible or intangible asset in order to obtain continuous income over time’, adding that, ‘in particular, lessors of property shall have such consideration.’.”

Article 11 of Law 37/1992 establishes that, for the purposes of the Tax, the provision of services shall be understood as any operation subject to it that is not considered a delivery, intra-community acquisition, or import of goods. In particular, paragraph two of Article 11 of the Law indicates that the following are considered provisions of services:

“(…)

2nd. Leases of goods, industry or business, companies or commercial establishments, with or without a purchase option.

3rd. Assignments of the use or enjoyment of goods.

(…).”

Consequently, the applicant is considered an entrepreneur or professional for the purposes of Value Added Tax, and the lease of a dwelling, whether as a primary residence or as a seasonal dwelling, will be subject to Value Added Tax when it is carried out in the territory where the Tax applies.

2.- On the other hand, Article 20, paragraph one, number 23, of Law 37/1992 establishes that the following operations, among others, are exempt:

“23rd. Leases that are considered services in accordance with the provisions of Article 11 of this Law and the constitution and transmission of real rights of use and enjoyment, which have the following assets as their object:

(…)

1. b) Buildings or parts thereof intended exclusively for housing or for subsequent leasing by entities managing public housing support programs or by companies under the special regime for Entities dedicated to the leasing of housing established in Corporate Tax. The exemption shall extend to garages and annexes accessory to the dwellings and furniture, leased together with them.

The exemption shall not include:

(…)

e’) Leases of furnished apartments or dwellings when the lessor undertakes to provide any of the complementary services typical of the hotel industry, such as restaurant, cleaning, laundry, or other similar services.

(…).”

According to the previous precept, the lease of a property, when intended for exclusive use as a dwelling, will be subject to and exempt from Value Added Tax, provided that it is not one of the cases excluded from the exemption established in this same article.

Otherwise, the aforementioned lease will be subject to and not exempt from Value Added Tax. In particular, this will be the case when it is rented to legal entities (given that they cannot directly use them as dwellings) or when the lessor provides services typical of the hotel industry, or in leases of dwellings used by the lessee for other uses, such as offices or professional studios, etc.

As follows from the reproduced article, the regulation contained in this exemption case is not of an objective nature, focusing on the property being leased to determine its applicability, but rather a purpose-based exemption that makes its application dependent on the use of the building, being mandatory when the effective destination of the object of the contract is housing, but not otherwise.

3.- From the information provided in the consultation letter, it seems to follow that the leasing of the dwellings will not be accompanied by the provision of complementary services typical of the hotel industry.

The activity consisting of the leasing of dwellings or parts thereof for periods of time, without providing any services typical of the hotel industry and limited to making the dwelling available to the lessee, is considered exempt from Value Added Tax.

4.- Which I communicate to you with binding effects, in accordance with the provisions of paragraph 1 of Article 89 of Law 58/2003, of December 17, General Tax Law.”

 

If you need advice regarding seasonal leases, tourist rentals, partial rentals, or room rentals, our area of lawyers specializing in leasing and taxation at IN DIEM Abogados is at your disposal in any of our offices; likewise, we have an online service. It will be a pleasure to assist you.