Vacation rentals: what taxes do I have to pay?

With rising demand for vacation homes and the consolidation of vacation rental platforms, this sector is increasingly regulated in order to prevent possible tax fraud. And not without reason: second homes and vacation homes are a very significant source of income for many owners.

You have probably had many questions about the taxation of your vacation rental: which taxes you have to pay, how to file your income tax return, and so on. Well, fear not: in this article we will clear up any questions you may have!
What is considered a tourist rental?
According to the Spanish Tax Agency (AEAT), a home is considered a tourist rental when there is a temporary assignment of the use of an entire home, furnished and equipped so as to be ready for immediate use, marketed or promoted through tourism channels and carried out for profit.
It is important to be clear that, since this is a home rented on a temporary basis, two periods must be distinguished, both of which must be reported in the same tax year:
• The first period corresponds to the time during which the home has been rented out. All income must be reported in full, although the expenses arising from the rental may be deducted in proportion to the days rented.
• The second period corresponds to the time during which the home has been vacant. In this case, it will give rise to income attributed by the tax authorities, and income must be reported merely by virtue of having a second home.
It should also be borne in mind that the owner or taxpayer will have to pay all taxes in full, without being able to apply the 60% reduction provided for in Article 23.2 of the Personal Income Tax (IRPF) Law for homes used as a main residence. Even so, certain expenses can be deducted.
What are the rules for tourist rentals?
Until 2013, vacation rentals were subject to the Urban Leases Law (Ley de Arrendamientos Urbanos, LAU). However, that same year a new law on measures to make the residential rental market more flexible and to promote it came into force, which transferred regulatory powers over vacation rentals to the Autonomous Communities (regions).
There is no national framework regulating the rental of tourist homes, since these were excluded from the Urban Leases Law.
Powers in this area lie with the Autonomous Communities, so you should contact the authorities in your region to make sure that your accommodation meets all regulations and minimum requirements, such as licenses, registration of homes, or the length of time required for it to qualify as a vacation rental.
How do you report the income from your vacation rental?
The various vacation rental regulations in Spain generally distinguish between establishments that provide lodging or hotel-industry services and those that do not. This is no minor matter, since it determines the regulations and tax obligations with which a vacation accommodation must comply.
Case 1. Vacation rentals with lodging services
Lodging activities are those in which not only is a property made available to customers, but a series of additional services is also offered during the stay or, failing that, a person is employed under a full-time employment contract and devoted entirely to the accommodation activity.
The following are considered lodging or hotel-industry services:
• 24-hour reception or customer service, in a space set aside for that purpose
• Periodic cleaning of the accommodation
• Periodic change of bed linen and bathroom items
• Laundry
• Luggage storage
• Newspapers
• Food and beverage service
If you offer this type of service, the rental of the tourist home will be considered a business activity and, therefore, its income will be business and professional income.
Case 2. Vacation rentals without the provision of services
If your property does not provide any of the services mentioned above, it will be considered simply a vacation rental. However, this does not mean that you cannot provide any services to your guests!
The following services are not considered hotel-industry services:
• Cleaning of the apartment before the guests’ arrival and after their departure
• Change of bed linen and bathroom items before the guests’ arrival and after their departure
• Cleaning of the building’s common areas (entrance hall, stairs, and elevators), as well as of the residential complex if the property is located in one (green areas, access gates, sidewalks, and streets).
• Technical assistance and maintenance for any repairs to plumbing, electrical systems, glazing, blinds, locks, and household appliances.
In this case, the income you obtain will not be considered as deriving from an economic activity.
Business Activities Tax (IAE)
The IAE is a direct tax applicable to any individual or legal entity carrying on a business, professional, or artistic activity in Spanish territory, and it affects both individuals and legal entities. Unless your annual turnover exceeds €1 million, you will not have to declare the IAE, but you will have to register for it.
Value Added Tax (VAT, IVA)
Tourist accommodation that does not provide supplementary services considered hotel services is exempt and does not have to declare VAT, since the income from the rental is not considered to derive from an economic activity but rather to constitute rental income (income from real estate).
Transfer Tax (ITP)
The ITP is a tax levied on onerous transfers of assets (transmisiones patrimoniales onerosas), that is, transfers from which an economic return is obtained. The income obtained from renting tourist homes without offering lodging services is considered rental income and must be taxed under the ITP.
The amount of the tax depends on the Autonomous Community where you are located, so we recommend that you contact the relevant tax agency to clarify how much you will have to pay before you start hosting guests at your property.
Personal Income Tax (IRPF)
Income from vacation rentals without the provision of services is considered rental income, and you must therefore calculate it by subtracting the deductible expenses from the gross income you obtain.
Remember that you will not be able to apply to this income the 60% reduction for leases of homes used as a main residence, since these rentals do not meet a permanent housing need but rather a temporary one.
Finally, do not forget that you will also have to pay tax for the period during which the home has not been rented out, which is treated as deemed income from real estate (imputación de rentas inmobiliarias) and usually ranges between 1% and 2.2% of the property’s cadastral value.
What are the risks of not reporting the income from your vacation rental?
In recent years, and as a result of the underground economy that exists throughout the vacation rental sector, the tax authorities have stepped up their oversight of tourist homes, with the aim of regularizing this type of activity.
The first measure they have taken is to require vacation rental platforms, such as Airbnb, Booking.com, or Vrbo, to report the properties listed on their websites and the identities of their owners and the income derived from leasing them, by filing a form known as Form 179 (modelo 179).
What can happen to you if the tax authorities find that you have not declared your vacation home?
The penalty you may face depends on whether the non-payment is considered minor, serious, or very serious fraud, but it ranges from 50% to 150% of the amount not declared. Bear in mind as well that the consequences may be greater depending on the Autonomous Community in which your property is located.