Companies outsourcing real estate management cannot apply the 15% reduced rate

The classification of an activity as economic or merely patrimonial determines the applicable tax rate in Corporate Income Tax (IS). Recently, the Dirección General de Tributos (DGT) has clarified the requirements necessary for the leasing of real estate to benefit from the reduced tax rate.

What the DGT has ruled

The query concerned whether an entity could consider its assets intended for rent as being assigned to an economic activity by outsourcing material and human resources to another company. The objective was to access the 15% reduced rate provided for in the Corporate Income Tax Law (LIS).

The Administration's criterion is categorical: for the leasing of real estate to be considered an economic activity, the regulations require the use of at least one person employed with an employment contract and full-time hours. The DGT establishes that subcontracting real estate management services does not fulfill this requirement of direct hiring of personnel. Consequently, if the entity does not have its own workers under its dependency, the asset is considered intended for patrimonial management and not for an economic activity.

What it means for you

If your company manages real estate assets for rent, the mere outsourcing of operations through third-party companies is not sufficient to change the fiscal nature of the activity. If the requirement of having own staff hired on a full-time basis is not met, the entity will not be able to apply the 15% reduced tax rate established in article 29.1 of the LIS and must pay tax at the general rate.

What should be done

It is necessary to evaluate the cost structure and the organization of the company's real estate activity. The decision to outsource management must be weighed against the tax benefit that the application of the reduced rate entails. It is recommended to analyze the composition of the workforce and the method of hiring human resources to ensure that the requirements demanded by the Corporate Income Tax Law are met and to avoid contingencies in the tax settlement.