Leasing of rural estates for parking must be subject to VAT

The tax treatment of leasing rural land depends strictly on the economic activity carried out on it. The Dirección General de Tributos (DGT) has specified the boundary between exempt operations and those that must bear Value Added Tax (IVA) according to the final use of the estate.

What the DGT has resolved

The administration has determined that the leasing of a rural estate for agricultural exploitation is subject to the tax but benefits from the exemption provided for in current regulations. However, if the purpose agreed upon in the contract is the parking of vehicles, the operation loses said exemption and becomes fully subject to IVA.

Likewise, the resolution addresses the possibility of rectifying IVA amounts that were previously applied or not applied incorrectly. The lessor may rectify the amounts provided that two temporal conditions are met:

• That four years have not elapsed since the accrual of the operation.
• That an invoice has been issued within the last year.

There is an exception to these conditions if the client accepts the impact of the tax.

What it means for you

If you are an entity leasing rural land, the nature of the use given to the soil will directly condition the cost of the operation. The designation of the estate is not enough; what defines the tax burden is the actual or agreed activity. If the use changes from agricultural exploitation to the use of land for parking, the exemption disappears and the lessee must bear the IVA.

For leasing companies, this criterion implies a responsibility in the correct determination of the tax rate applied, as an error in the classification of the land use could lead to the need to rectify amounts from previous periods.

What should be done

It is necessary to review rural estate lease agreements to ensure that the agreed purpose coincides with the activity that is effectively going to be developed. In the event that errors are detected in the application of IVA due to an incorrect classification of land use, the possibility of rectifying the amounts within the legal deadlines established by Law 58/2003 and RD 1065/2007 should be assessed.