Real estate alert for non-resident companies leasing properties in Spain – relevant changes in VAT for leases.
The recently approved Budget Law brings a series of fiscal changes that will enter into force as of 1 January 2023.
Among these are the amendment of Article 84 of the Law on Value Added Tax with regard to real estate. (Reverse Charge Mechanism)
This change introduces new cases of reversal of the taxable person, such as deliveries of waste, waste or plastic cuts, and deliveries of waste or unusable articles of rags, twine, ropes or cordage. Both are now changed in favour of entrepreneurs or professionals.
But in addition to these, the mentioned Law excludes rentals made in Spain by non-resident companies from the application of the Reverse charge mechanism.
This will directly affect non-resident entities leasing properties in Spain without considering that they’re established in Spain for VAT purposes, protected by administrative doctrine and Community jurisprudence.
Until now, the landlord in these cases issued invoices relating to the lease without passing on any Spanish VAT. This has been based on the status as a non-established entity for VAT purposes in the TAI, (provided that it didn’t have its own staff).
Thus, the tenant was the taxable person and had to include the amount of that income for both the VAT due and the input VAT in their tax return.
This treatment changes as of 1 January – the non-resident entity will be the VAT taxpayer and therefore invoices issued must pass on the VAT of 21% for rental income.
Likewise, non-resident entities must periodically submit self-assessments, including any VAT passed on, and deposit the resulting balance in the Public Treasury – for which they must have a bank account with a bank collaborating with the AEAT in Spain.
Given the immediacy of this change, affecting leases invoiced from 1 January 2023, we recommend landlords immediately inform tenants of this change before issuing any invoice.
Should you have any questions, get in touch with Auxadi’s expert real estate and tax teams in Spain.