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Indirect Taxation on the leasing of Real Estate

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Jordi Rius analyses the indirect taxation derived from property leases

The content of the present article is to offer a broad view of indirect taxation derived from the leasing of real estate, thus entering the field of Value Added Tax (hereinafter, VAT) and Tax on Onerous Transfer of Assets and Documented Legal Acts, in its two forms: Onerous Transfer of Assets (hereinafter, TPO) and Documented Legal Acts (hereinafter, AJDD).

Given the complexity of indirect taxation, it is our intention to try to deal with the explanation in the most didactic way possible.

Compatibility and Incompatibility between VAT, TPO and AJD

These are three taxes (if we want to be stricter, two taxes, one of them under two forms) that may coincide in real estate matters and, therefore, generate compatibilities and incompatibilities.

In turn, the AJD has a double aspect, insofar as it can be presented under a fixed or variable quota.

  1. Fixed fee: the matrixes and the copies of the deeds and notarial acts are subject to this fee, as well as the testimonies that are drawn up, in any case, on stamped paper of 0.30 euros per sheet or 0.15 euros per sheet, at the notary’s choice.
  2. It is the tax cost of each notarial sheet: the first copies of deeds and notarial acts are subject to the AJD variable fee when they incorporate all these conditions:
  • To have as an object quantity or a valuable thing.
  • Contain acts or contracts that may be registered in the Property, Commercial, Industrial Property and Movable Property Registries, and
  • Not be subject to Inheritance and Gift Tax, or to TPO or Corporate Operations (the latter, also ITP and AJD).

To the extent that the amount to which the fixed fee may amount is not relevant, we will focus on the game that can give VAT, TPO and AJD variable fee (hereinafter, AJD).

The following table shows the compatibility between them graphically:

Incompatible with
Compatible with
Incompatible with
Incompatible with
Incompatible with
Compatible with


Status of the landlord of the property

In accordance with Article 5 of the VAT Act, entrepreneurs or professionals for VAT purposes are deemed to be those who provide services involving the exploitation of tangible or intangible property to obtain a continuous income over time. Lessors of goods shall be deemed to have such status.

From a subjective point of view, any natural or legal person who leases a good will be considered as an entrepreneur for VAT purposes, without prejudice to the fact that such leasing is subject to but exempt from VAT and, therefore, does not generate any obligation to pay VAT.

Qualification of the lease for VAT purposes

As noted in the previous section, to the extent that any lessor is a business owner for VAT purposes, the lease of immovable property will be classified as a transaction subject to VAT. For information purposes, it should be noted that VAT liability means that the transaction falls within the scope of the tax, although it may be exempted from payment for legal reasons.

In this line, in relation to real estate, the following are certain scenarios of real estate leases that deserve to be clarified in terms of their classification for VAT purposes:

  1. House rental:

Rentals of buildings or parts thereof intended exclusively for residential use, including garages and annexes attached to dwellings, are subject to and exempt from VAT.

A sensu contrario, leasing for other than residential use is subject to and not exempt from VAT, although the lease of a building or part thereof constructed as business premises but intended exclusively for residential use is subject to VAT but exempt.

The key is the destination of the property: the dwelling or the use other than the dwelling.

2. Rentals of dwellings with hotel and restaurant services:

Rentals of furnished apartments or dwellings, when the lessor is obliged to provide complementary services specific to the hotel and catering industry (restaurant, cleaning, laundry, etc.), are subject to and not exempt from VAT, at the reduced rate of 10%.

The concept of complementary services for the hotel and catering industry includes services such as reception and permanent and continuous customer service in a space designated for this purpose, periodic cleaning of the building and accommodation, periodic change of bed and bath linen, and making other services available to the client (laundry, luggage storage, press, reservations, catering, etc.).

  • In the light of the rise of internet platforms that allow the leasing of tourist apartments for short periods of time, the Directorate General for Taxation has further refined the concept of hotel and restaurant services, and has indicated that the following services cannot be classified as hotel and catering services:
  • Cleaning service provided at the entrance and exit of the period contracted by each tenant.
  • Change of bedding service provided at the check-in and check-out of the period contracted by each tenant.
  • Cleaning service for the common areas of the building (entrance hall, staircases and lifts) as well as the development where it is located (green areas, access doors, sidewalks and streets).
  • Technical assistance and maintenance services for possible repairs to plumbing, electricity, glassware, blinds, locks and electrical appliances.
  • Therefore, the leases of dwellings that include some or all the services mentioned above are subject to and exempt from VAT

3. Leases of real estate to companies, with the purpose of housing for their employees:

As we said before, an exempt dwelling lease is defined as one that is intended for use as a dwelling. This being so, the doctrine and case law tended to consider that, if a company was listed as a lessee, it should not be classified as exempt from VAT, even if the company could use the property for housing of, for example, one of its employees.

In contrast to this criterion, it should be noted that the Central Economic and Administrative Court modified its criterion in December 2016, admitting the exemption of the lease in favour of a company that uses the leased property for housing for its employees, provided that the following requirements are met: the rental contract must specifically designate the person who is to occupy the dwelling, must prohibit its transfer or subletting by the tenant and may not designate the persons who are to occupy the dwelling after the end of the contract.

4. With purchase option

In cases where a purchase option agreement is added to the lease, the lease is not exempt from VAT when neither is the transfer of the leased property.

Generally speaking, the first supplies of buildings are subject to VAT and are not exempt from it, so that the lease with the option to buy a dwelling whose supply qualifies as a first supply of building (for example, new construction), will be qualified as subject to and not exempt from VAT, at the reduced rate of 10%. On the other hand, the lease-purchase on buildings whose delivery is classified as a second or subsequent delivery of building, will be qualified as subject to and exempt from VAT.

Qualification of the lease for TPO purposes

Based on the play between VAT and TPO, leases that are qualified as subject to and exempt from VAT will be taxable under TPO, with the lessee being liable for tax. The taxable amount is the total amount to be paid by the lessee to the lessor during the term of the lease. In this respect, when the term of the contract is not specified, the tax legislation presumes a minimum term of six years, without prejudice to the additional settlements to be made, if it continues to be in force after the temporary period.

As for the tax rate, the Autonomous Communities are competent to set the scale of taxation, failing which the following scale shall apply:

Euros Euros
Until 30,05 0,09
From 30,06 to 60,10 0,18
From 60,11 to 120,20 0,39
From 102,21 to 240,40 0,78
From 240,41 to 480,81 1,68
From 480,82 to 961,62 3,37
From 961,63 to 1.923,24 7,21
From 1.923,25 to 3.846,48 14,42
From 3.846,49 to 7.692,95 30,77
From 7.692,96 onwards 0,024040 for each 6,01 euros or fraction


Qualification of the lease for AJD purposes

In the case of leases that are subject to VAT, it will also be possible to tax them by AJD, provided that, as mentioned above, they are a first copy of deeds or notarial deeds with valuable content, which can be registered in the Public Registry and are basically not subject to TPO.

The taxable base of the AJD will be the declared value of the act or contract, for the calculation of which the rule contained in the TPO could be considered, while the tax rate will be that fixed by each Autonomous Community, or in its absence 0.5%.

Lease Tax Summary Chart

By way of conclusion, the following table details the scenarios analysed in the previous sections, indicating the compatibility between VAT, TPO and AJD.

Rental type IVA TPO AJD
Residential use, garages and accessories
Distinct residential use
X   X
To a company without specifying the employee
X   X
To a company, specifying the employee   X  
With catering service X   X
With purchase option, from first instalment X   X
With purchase option, from second instalment   X  



For further information, please contact:

Jordi Rius i Perramon

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