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V2367-17 18 September 2017 · SG de Impuestos sobre la Renta de las Personas Físicas Criterion in force
IVA · arrendamiento de vivienda

Leasing residential property to a local council for free transfer to relocated persons may be exempt from VAT

A local council leases a residential property to provide it free of charge to relocated individuals. The DGT examines whether income tax withholding applies and whether the transaction is subject to VAT.

The question raised

Subjectivity to withholding tax on income paid and exemption from Value Added Tax.

The DGT's ruling

In Personal Income Tax (IRPF), the city council is obliged to apply withholding tax on rental income, unless the exceptions set forth in the Regulations are met. Regarding VAT, the lease is exempt if the city council does not carry out a business activity and provides the housing free of charge without consideration. If the city council were to act as a business entity and lease the housing for consideration, the transaction would be subject to the general rate of 21%, unless the end users are specifically identified in the contract.

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