Renting out a holiday home can be somewhat complex, but we will explain in simple terms how VAT applies to the rental of a holiday home and the use of a management company to handle bookings. This is particularly important for property owners in the Balearic Islands who rent their homes to tourists and want to comply with all regulations without making things more complicated than necessary.
If you rent out a holiday home and hire a company to assist you, several tax-related questions may arise: What taxes apply? Do you need to pay VAT or not? Understanding these details is crucial, as renting out holiday homes can generate significant income but also requires compliance with specific regulations. According to a recent clarification by the General Directorate of Taxes, there are certain key points to keep in mind to avoid future issues.
If you rent a property solely for residential purposes, the rental is generally subject to VAT, but you do not need to collect it. This means that even though the rental falls under VAT regulations, it is usually exempt, provided you do not offer hotel-like services such as daily cleaning, reception, or laundry services. The determining factor is whether you only offer the property itself or provide additional services similar to a hotel. If you simply hand over the keys and make the property available to tourists without any additional services, you are likely exempt from VAT.
If you choose to work through a real estate agency that acts “on behalf of and for the account of the owner” and does not offer hotel services, no VAT needs to be paid. In this case, the owner rents directly to the tourists, and the intermediary agency merely assists with organization and marketing. The agency acts as a facilitator, helping with administrative tasks but not taking on the contractual role with the tourists. This distinction is crucial as it determines who is responsible for VAT.
However, if the agency acts independently and manages all transactions with the tourists, the rental may no longer be VAT-exempt. This is because such an arrangement could be considered a hotel service, as the agency handles interactions with the tourists, processes bookings, and may provide additional services that go beyond the simple rental of accommodation. In this scenario, the role of the management company changes, as do the associated tax obligations.
The difference between whether VAT applies or not depends on whether additional services are provided. For instance, changing bed linens or cleaning only at the beginning and end of the stay does not constitute a hotel service. These are basic services that do not alter the nature of the rental. However, if these services are provided regularly during the stay—such as cleaning every other day or changing towels daily—you may lose the VAT exemption. In this case, the rental resembles more of a hotel-like accommodation service, and VAT would become applicable.
In summary, if you rent your property to tourists and work with a management company, you should ensure that you meet the requirements for VAT exemption. Since tax laws can be complex and each situation is unique, it is advisable to seek the help of a tax advisor. A good advisor can guide you on how to avoid issues and maximize tax benefits. They can also help you understand your obligations as a landlord, giving you peace of mind that everything is handled correctly.