VAT applicable to the rental of holiday accommodation

11.2013

Over recent years, the letting of accommodation to tourists on a daily basis has become a big business in some Spanish towns. In many cases, however, the owner and landlord of the accommodation is incurring an error that the tax authorities are now starting to be aware of.

As a general rule, the letting of accommodation to tourists through a holiday rental website is a VAT-exempt operation, and the exemption to the rule must be justified. As a consequence, any input VAT incurred – e.g. on works, repairs or services in the property – is not deductible.

Only in such cases where the landlord of the property offers services similar to those of a hotel will the rent be subject to VAT and, therefore, input VAT will be deductible. But, what are these services? There is no general rule and this will depend on each specific case. But both the tax administration and the courts require that there is a similar activity to that carried out by hotels (consultations to the Spanish Directorate-General for Taxes of 25 April 2005 and 3 May 2011). This means, for example, having a front desk and staff that works in the property on a regular basis and takes charge of the daily cleaning and the laundry, amongst other services. In all other cases, the most cautious option is to not apply VAT. In the case that extra services actually exist, what is the applicable tax rate? There are contradictory opinions in that respect, and even case-law ruled that a 21% tax rate should be applied instead of 10%, as applicable to hotels.

++Published at the tax newsletter of the German Chamber of Commerce related to VAT news.++