Renting a home is becoming pricier. According to the latest pisos.com rental price report, the average rent for an apartment in Spain stands at 10.41 euros per square meter. In January 2023 it rose by 3.38 percent compared with the same month a year earlier. Beyond the monthly rent, other costs can add to the total expense depending on how the rental is arranged.
Taxes and daily budgeting often feel like a daily obsession. It helps to know the procedures to follow and the payments due. When a house is for rent, there are cases where value added tax or VAT applies. The goal here is clarity, helping readers see the situation clearly and avoid surprises.
The company rents a house for its employees.
Even if the dwelling’s use is intended for an arbitrary occupant, the contract’s owner may be a legal entity. The tax administration has a clear stance: VAT is payable in this scenario without restriction. A notable exception came from the Central Economic-Administrative Court in its decision dated December 15, 2016, which ruled against collecting this tax when the lessee is a company, as long as it can be proven that the property’s use remains in the hands of a person named in the rental agreement. This ruling highlights how ownership and who actually uses the property influence VAT liability.
Mixed use of rental property
There are situations where a property serves both as a home and a workplace. In such mixed-use cases VAT remains due. The tax applies to the portion corresponding to the space used for business activity, and the proportionate share must be paid on the total property value. When it comes to withholding taxes in the quarterly return, the tax is assessed for the percentage that relates to business use. This arrangement can feel unfair to both parties, especially when the lines between personal and professional space blur.
Rental with option to purchase
VAT may also apply in rental agreements that include an option to buy. This option must be clearly included in the lease. Current practice allows parties to specify terms about a future purchase, so long as the terms comply with applicable law. After the period designated for the purchase, the tenant may either buy the property or continue renting it without the option to buy. The choice may depend on the contract and the parties involved.
VAT on these properties becomes mandatory if the property is new and a rental is ongoing before the purchase decision. When the contract includes a purchase option during the term, VAT applies to the value remaining under that period. If the tenant decides not to buy after the option period ends and continues renting, VAT in a new contract may cease to apply. In such a case, any VAT paid up to that point does not convert to a refundable credit. This nuance underscores how timing and contract structure affect VAT obligations and potential losses or savings for either side.