Recently, we have been witnessing the enormous impact that the issue of rentals is having in our country, due to the emergence of holiday rentals as a new way of exploiting leases. In this context, we want to focus on property owners and their tax obligations when renting out their property and issuing invoices.

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As a summary, we present the different options that can occur when renting a property in the following table:

We have received various inquiries on this subject, and we are going to resolve the different proposed situations one by one:

• An entity, a legal person, rents a home for its employees to occupy for the duration of their work at the destination. Does IGIC apply to that rental?

Yes, it will carry IGIC. There is only one exception: when the rental contract identifies each of the employees who are going to occupy the home (first name, last name, and DNI/NIE), IGIC is not applied. This is stated in the Binding Ruling No. 1862 of the Government of the Canary Islands.

 

• If as a landlord I had to re-invoice any utility services, should I apply IGIC on the new invoice, or simply pass on the cost?

In the event that the rental contract stipulates that utility expenses are part of the consideration for the service, IGIC must be applied to the new invoices (even if the service provider did not apply it). This new invoice is made using the total amount paid as the tax base. This is covered in Article 22 of Law 20/1991 "Tax base in the delivery of goods and in the provision of services: General rule." Ap. 1 and 2 a). Also in Binding Ruling No. 640 of the Government of the Canary Islands.

 

• An owner needs to re-invoice a month's rent. Would it be correct to include the utilities in the invoice along with the rental price, and generate a joint tax base to which withholding and IGIC can be applied if applicable?

Yes, a joint invoice can be made (rent and utilities; itemized or not) and the 7% IGIC can be applied to them.

 

• In which cases can the landlord deduct the IGIC from the expense invoices?

If the landlord has an economic activity and is in the General Regime, the IGIC can be deducted in the corresponding tax model. If they are in REPEP, they cannot deduct it. If there is no economic activity, only the gross amount (excluding tax) is deducted. This is stated in the Management Decree 268/2011.

 

• In a rental other than for housing (residential), in which case withholding is applied to the rent, is withholding also applied to utilities? Is the tax base of the original invoice or the total amount paid (including IGIC, if applicable) of the utility invoice considered?

According to Art. 100 of the Income Tax Regulations (RIRPF), withholding is applied to the base price of the utilities.

 

• In which cases can the landlord deduct these expenses for the purposes of IRPF (Personal Income Tax) or IS (Corporate Tax)?

In those cases where the landlord pays the utility expenses, they may deduct them. They must, in turn, declare the corresponding income from the expenses invoiced to the tenant.

 

Tax regulations are very changeable, and if we also address a relatively new topic, it is not surprising that we will see many changes. For this reason, from NOMASPAPEL we recommend consulting with a Consultancy regarding the taxation for your specific case.