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V0165-16 19 January 2016 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · arrendamiento de bienes

Leasing of premises with a grace period is subject to VAT through the assumption of expenses by the tenant

A company has requested clarification on the VAT and withholding tax treatment of a lease agreement featuring a ten-year rent-free period. The Directorate-General for Tax (DGT) has ruled that the lease constitutes an onerous transaction because the tenant assumes certain expenses, which necessitates the application of VAT during the grace period.

The question raised

How both VAT and withholdings derived from said lease agreement are taxed and when they accrue.

The DGT's ruling

The lease is an onerous transaction when the lessee undertakes to assume expenses (community fees, Property Tax, rates) instead of paying rent. During the grace period, the lessor must charge VAT using the value of the assumed expenses as the taxable base. Regarding Personal Income Tax, the obligation to withhold does not arise as long as the agreed rents are not satisfied.

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