Landlords renting residential property to companies must issue VAT invoices

The tax treatment of leasing real estate intended for residential use presents important nuances depending on the nature of the tenant. Recently, the Dirección General de Tributos (DGT) has specified the applicable regime when the tenant is a legal entity.

What the DGT has ruled

The administration has determined that the exemption from Value Added Tax (IVA) on the leasing of real estate for residential use only applies when the tenant is a natural person. As soon as the tenant is a legal entity, the operation loses said exemption and becomes subject to the tax.

Furthermore, the ruling establishes that, as it is an operation subject to IVA where the recipient is an entrepreneur or professional acting as such, the owner has the legal obligation to issue an invoice. A simple payment receipt does not substitute the obligation to invoice when the client is an entity with economic activity.

What this means for you

The impact of this ruling varies depending on the profile of the party in the operation:

• If you are a company: You have the right to demand the corresponding invoice from the landlord. This document is indispensable for the company to correctly manage the operation for IVA purposes.
• If you are a landlord: If your tenant is a company or a legal entity, you must apply the corresponding IVA rate and issue a formal invoice, in accordance with the invoicing regulations, instead of a mere receipt.
• If you are an individual: The leasing of residential property to natural persons maintains its exempt status from IVA, provided that the intended use is effectively residential.

What should be done

It is necessary to verify the legal nature of the tenants in real estate lease contracts. In the event that the tenant is a company, it must be ensured that the accounting documentation complies with current regulations to avoid tax contingencies. It is recommended to assess the situation of each contract to determine whether the operation must be taxed under Value Added Tax (IVA).