Legal and tax analysis for the Spanish market

• How are short/medium/long-term leases defined in Spain?
• What are the requirements for the form of the lease agreement (written form, type of signature)?
• What are the basic elements of a lease agreement?
• Are there any differences between regions in Spain?
• Is it a condition or a rule to pay a security deposit (and how much) when renting apartments and houses?
• Which institutions do I need to register with as Landlord?
• What licenses do I need to operate a medium-term rental business?
• Which taxes are relevant to the Spanish Landlords (landlords with tax residence in Spain)?
• Personal Income Tax
• VAT
• Transfer tax
• Local taxes
• Invoices
• What does a landlord via Airbnb, have to comply with (laws, taxes, obligations) and medium rental landlords don’t have to?
• Insurance for the rental business

How are short/medium/long-term leases defined in Spain?

Depending on the purpose of the lease, Spanish Law identifies three types of leases that govern short/medium/long term leases:

1. Housing Leases: The main purpose is to satisfy the tenant's permanent need for housing. They are governed under the Spanish Urban Lease Act (Ley de Arrendamientos Urbanos 29/1994, de 24 de noviembre) (the “Spanish Urban Lease Act”).
2. Temporary Leases or Mid-Term Leases: Refers to those leases held on a seasonal basis, be it summer or any other, and those to carry out an industrial, commercial, artisan, professional, recreational, welfare, cultural or educational activity on the property, whoever the persons who hold them may be. The Temporary Leases are also governed under the Spanish Urban Lease Act with the particularity, that the except for several provisions, the lease is governed by the will of the parties so they may freely agree with the provisions of the lease agreement.
3. Touristic Leases: Refer to the leases that are subscribed on a temporary basis; furnished and equipped in conditions of immediate use; for profit; under the conditions established in its own regional regulations; the house is marketed or promoted in a tourist offer channel or in any other channel. They are expressly excluded from the Spanish Urban Lease Act and are governed at a regional and municipal level, meaning that each Autonomous Region (Comunidad Autónoma) and certain cities have its own touristic leases regulations, and applies its own requirements.
   Overall, these types of leases are more restrictively regulated throughout the different territories of Spain and require landlords to have a license.
   For instance, in Catalonia which is governed Decree 75/2020, of August 4, on Tourism in Catalonia, sets forth in its article 221-1.2 that in order to be considered a Touristic Lease the term of the occupancy has to be of up to 31 days. Therefore, to categorize whether a lease is a Touristic Lease or a Mid-Term Lease you have to go on a case-by-case basis pursuant to the regional and municipal legislation applicable to each territory.

What are the requirements for the form of the lease agreement (written form, type of signature)?

The legal regime of the Mid-Term Lease does not require any solemnity and can either be oral or written. However, to give legal certainty to the parties, it is very important to record the terms and conditions agreed upon by the parties in writing. The signature of the lease agreements in any of its types may be signed either by wet ink signature (handwritten signature) or by electronic signature.

What are the basic elements of a lease agreement?

The basic elements of a lease agreement include among others the following:

• The identification of the Parties.
• The description of the premises.
• The date the lease enters into force.
• The term of the lease agreement.
• The amount of the rent payable, how often and when it should be paid, and how often and when it can be increased.
• The delivery of the security deposit.
• Potential Restrictions in the use of the property.
• Distribution of liability for eventual damages.
• The events under which terminate the agreement.

Are there any differences between regions in Spain?

As previously informed in Section I, on Temporary Leases the general regime is the same throughout all Spain since the applicable law is the Spanish Urban Lease Act. However, for Touristic Leases we will have to go on a case-by-case basis since the regulation is set forth on a municipal and regional level.

Is it a condition or a rule to pay a security deposit (and how much) when renting apartments and houses?

Under the Urban Leases Act, in the Temporary Leases, the Tenant is obliged to deliver an amount equal to two-monthly rents. However, there are some regions of Spain that have developed regional legislation that does not require the Tenant to pay in full the two monthly rents as security deposit and specify that the two monthly rents demanded by the Spanish Lease Act and state that the two monthly rents have to be proportional to the term of the contract and that the two monthly rents taking as a reference that these two monthly rents correspond to a one-year agreement. The Landlord must deposit the security deposit to the corresponding Registry in accordance with the regional legislation applicable. Once the lease is terminated, the amount deposited will be returned. The Landlord can withdraw the amount of the deposit by presenting the deposit receipt and the Landlord's copy of the rental contract, where the deposit will be stamped as canceled when it is returned.

Which institutions do I need to register with as Landlord?

For Temporary Leases, there is no need that the Landlord registers with any Land Registry to rent a property. However, for Touristic Leases some regions in Spain require that the Landlord registers with the relevant regional or municipal registry.

What licenses do I need to operate a medium-term rental business?

For Temporary Leases the Landlord does not have to request any License to be able to lease the property. However, for Touristic Leases the regional and municipal regulations may require the collection of the relevant license and any other additional requirements to rent the property which will depend in each case on the applicable local and regional legislation.

Which taxes are relevant to the Spanish Landlords (landlords with tax residence in Spain)?

Personal Income Tax

An individual who is a Spanish tax resident and rents a real estate property in Spain for housing purposes, without this being an economic activity, would be subject to personal income tax on the net income received therefrom at a progressive rate that would vary between 21.5%-50% (this range may vary depending on the Autonomous Community where the individual resides). The gross income would be reduced by the necessary expenses for obtaining the income (e.g., interests, expenses for conserving or repairing the property, amortization, taxes, insurance, etc.), although certain limits may apply. Assuming the rent of the real estate property is temporary, the owner would not be able to apply the 60% reduction on the net income received from the rent.

During the time in which the real estate property is not rented, the individual would have to allocate in his personal income tax an income for the amount that results from applying a 2% to the cadastral value of the property (or 1,1% if the cadastral value was recently revised) in proportion to the amount of days in which the property was not rented. This amount would be taxed at a progressive rate that would vary between 21.5%-50% (this range may vary depending on the Autonomous Community where the individual resides).

The individual would have to file Form 100 (personal income tax return) from April 1st until June 30th of the following year. Non-resident Income Tax: If the individual who rents the real estate property located in Spain is a foreign tax resident, without this being his economic activity, the net income derived from the property rental would be considered Spanish sourced income and would be subject to Non-resident Income Tax at a flat 24% tax rate. If there is any tax due, the individual would have to file Form 210 during the first 20 days of April, July, October and January regarding the income of the quarter before.

During the time in which the real estate property is not rented, the individual would have to allocate in his non-resident income tax an income for the amount that results from applying a 2% to the cadastral value of the property (or 1,1% if the cadastral value was recently revised) in proportion to the amount of days in which the property was not rented. This amount would be taxed at a flat rate of 24%. In this case, the nonresident individual would have to file Form 210 during the following year as of obtaining the income.

Please note that for the renting income as well as for the allocation mentioned in the paragraph above, the conclusion may change if a Double Tax Convention is applicable. Also, the individual should refer to a local tax advisor to determine the taxation of the income in his country of residence.

VAT

The housing rental to an individual would be subject but exempt from Spanish VAT, this conclusion would change if the landlord renders services similar to the hotel industry (housekeeping, room services, laundry, etc.). Provided that the landlord only provides house renting services, exempt from VAT, the landlord would not be obliged to file VAT returns.

Transfer tax

Although housing rental would be exempt from Spanish VAT, the tenant would be subject to transfer tax (TPO) for the housing rental. Even if the tenant is the taxpayer, if the landlord does not request proof of payment of the transfer tax when receiving the first payment, he would have subsidiary responsibility on the transfer tax payment. The tax basis would be the total amount payable during the lease agreement. The applicable tax rate would depend on the Autonomous Community where the property is located, however, if the national rates are used and amount of the lease agreement is between 3,846.49€ up to 7,692,95€, the tax payable would be 30,77€. The tenant would have to file Form 600 within 30 business days as of the signature of the lease agreement. Please note that in some Autonomous Communities the housing rental es exempt from transfer tax.

Local taxes

The owner of the real estate property would be subject to the annual property tax (Impuesto sobre Bienes Inmuebles – IBI), the tax basis is the cadastral value of the property and the tax rate applicable would vary depending on the municipality where the property is located, however, it would range between 0.4%-1.3%.

Invoices

Provided the property is rented to an individual for housing purposes, because the service is exempt from VAT, the Landlord would not be obliged to issue an invoice.

What does a landlord via Airbnb, have to comply with (laws, taxes, obligations) and medium rental landlords don’t have to?

As stated above, the main difference between the Mid-Term Leases and Airbnb resides in the fact that the latter focuses its business on offering properties directed for vocational purposes. In contrast, Mid-Term Leases focus their activity on an industrial, commercial, artisan, professional, recreational, welfare, cultural, or educational purpose on the property.

From a legal standpoint, the main difference between these two types of leases is that the Temporary Leases are governed at a national level by the Urban Rent Act allowing the parties, subject to the exceptions provided in the Urban Lease Act, to freely agree with the terms and conditions of the lease, and the Touristic leases are governed by the regional and municipal regulations which in most of the cases require the need of the Landlord to request the relevant license in order to lease the premises.

Insurance for the rental business

The Spanish legislation does not foresee the obligation of the Landlord to hire insurance to rent the property. However, it is highly advisable that the Landlord hires insurance covering the potential damages in the structural elements (the walls, the floor, the roof, the electric system, plumber services) of the premises.

On the other hand, it is advisable that the Tenant hires insurance covering the potential damages over the content included in the property and the civil liability derived from damages in the property.