The Spanish Central Administrative Court (TEAC), in a recent resolution, has clarified which are the requirements to apply the VAT exemption on the rental of a permanent home for a company’s employees.
In order to apply the exemption, it will be necessary: (i) to identify the individual who will use the property as his or her permanent home; and, (ii) that the tenant is not entitled to sublease it or to designate the individuals who may successfully occupy it.
A new criterion which is worth knowing, by all companies that rent properties for their employees.
✔ The Tax authorities interpretation to date
The rental of properties intended for use as permanent homes, including garages and accessory annexes as well as furniture leased together with the property, is VAT exempt. However, if the contract lessee is a company, the Spanish tax authorities have interpreted that the rental of the property to be used by an employee is not VAT exempt as such exemption requires that the use is directly done by the lessee. In such a case, the VAT rate is 21%.
Although only some Courts had admitted up to now the possibility of applying the exemption in the lease of dwellings to companies so that they were used by employees, it has only been recently that the Spanish Central Administrative Court (TEAC) depending from the Ministry of Finance, (Resolution of Dec. 15, 2016 , Voc. 5ª, RG 3856 / 2013) has finally accepted the VAT exemption in such transactions.
✔ The Spanish Central Administrative Court (TEAC) current opinion
The TEAC accepts that this is an exemption which is not based on the real estate property nature that is leased but on the use of the property as permanent home by the tenant.
The exemption can be applied if the contract includes who is the ultimate user of the property and does not permit the sublease or cession to any individual not related to those designated in the contract. In such a case, the requirement that the rental contract only serves as a permanent home to a concrete individual is met.
It is, therefore, necessary that the contract identifies who will be the user of the property. In the event that the tenant company has the possibility of designating the individuals who will occupy the property, because it may be at the disposal of successive employees, then the exemption shall not apply.