Landlords must include municipal fees in the rental tax base

The nature of the concepts that make up the invoice for a commercial premises lease has been defined following a recent resolution by the Dirección General de Tributos (DGT). The inquiry focused on determining whether municipal and regional fees passed from a landlord to a tenant must be subject to Value Added Tax (IVA).

What the DGT has ruled

The advisory body has ruled that, when the passing on of expenses is carried out within the framework of a lease agreement, such amounts are considered accessory services to the main activity. Consequently, these fees form part of the tax base of the leasing service and must receive the same tax treatment as the rental income.

The applicable regulation, Law 37/1992, establishes that the accessory elements of a main operation follow the fate of that operation. The only exception raised is the case of disbursements (suplidos), where the landlord pays on behalf of and for the account of the client through an express mandate and with an invoice issued directly in the name of the tenant; in that specific case, they would not be subject to the tax.

What this means for you

For companies acting as landlords, this implies the obligation to calculate VAT on the total amount, which includes both the rent for the premises and the municipal or regional fees passed on to the client. They cannot be treated as independent concepts exempt from tax if they are included in the rental invoice.

For tenants of commercial premises, this means that the total cost of using the property will include VAT on the sum of the rent and the passed-on expenses. It is essential to identify whether the landlord is operating under the accessory service modality or if, indeed, the requirements are met for the expenses to be treated as disbursements.

What should be done

It is necessary to review the structure of lease agreements and the way the passing on of expenses is invoiced. If the intention is for these concepts not to be subject to VAT, it must be ensured that the requirements for disbursements are strictly met, including the express mandate and the direct billing of the fees in the name of the tenant. Given the complexity of managing these concepts, it is recommended to assess the particular situation of each contract to avoid errors in the tax settlement.