Owners of rental properties cannot apply tax neutrality without employees

The Dirección General de Tributos (DGT) has defined the requirements necessary for the contribution of assets to a company to qualify for the tax neutrality regime provided for in the Corporate Tax regulations.

What the DGT has resolved

The advisory body has determined that, to apply the special tax neutrality regime established in Article 87 of the Corporate Tax Law (LIS), the contributed assets must be tied to economic activities. In the specific case of the real estate leasing activity, the DGT establishes a strict criterion to consider that a sufficient organization of means exists.

According to the resolution, the activity of renting properties—whether long-term or holiday rentals—is only considered an economic activity if it has the necessary human resources. Specifically, the existence of at least one person employed with a labor contract and on a full-time basis is required. If the owner does not have this staff, the properties are not considered tied to an economic activity and, therefore, the contribution cannot benefit from the tax neutrality regime.

What this means for you

This criterion has a direct impact on individuals who manage portfolios of properties intended for rent and wish to transfer said ownership to a company through a non-monetary contribution.

• Limitation of the special regime: If the management of the rentals is carried out directly by the owner without hiring staff, the contribution of the properties to the new company will be taxed differently, as the activity branch regime cannot be applied.
• Scope of the activity: The criterion applies to both long-term rentals and those of a holiday nature or subleases.
• Human resources requirement: The mere existence of an organization of material means is not sufficient to meet the DGT's requirement; the presence of an employee with a labor contract and full-time hours is the determining factor.

What should be done

Given the intention to make a contribution of properties to a company with the aim of taking advantage of tax neutrality, it is necessary to evaluate the current operational structure of the leasing activity. It must be verified whether the management complies with the requirement of having staff hired under the conditions required by the DGT to avoid tax contingencies in the operation.