Taxation in the Income Tax of non-residents and in the Value Added Tax, of tax residents in the United Kingdom and that develop the activity of renting in Spain.
A. Non-Resident Income Tax.
As they are tax residents in the United Kingdom and obtain income in Spain from the rental of a property, the Agreement between the Kingdom of Spain and the United Kingdom of Great Britain and Northern Ireland to avoid double taxation and prevent tax evasion in matters of income and wealth taxes and its Protocol, done in London on 14 March 2013, hereinafter the Convention, will apply (BOE of 15 May 2014).
Article 6 of the Convention establishes:
"Income obtained by a resident of a Contracting State from immovable property (including income from agricultural or forestry operations) situated in the other Contracting State may be taxed in that other State.
2. The expression "immovable property" shall have the meaning assigned to it by the law of the Contracting State in which the property is situated. This expression includes in any case property ancillary to immovable property, livestock and equipment used in agricultural and forestry operations, rights to which the provisions of private law relating to immovable property, the usufruct of immovable property and the right to receive fixed or variable payments for the exploitation, or concession for the exploitation, of mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property.
3. The provisions of paragraph 1 shall apply to income derived from the direct use, hiring or sharecropping and from any other form of exploitation of immovable property.
Therefore, in accordance with the provisions of the aforementioned Article 6, Spain may subject to taxation income derived from the rental of real estate located in Spain and obtained by a resident in the United Kingdom, in accordance with internal regulations.
In the event of double taxation, the United Kingdom, as the country of residence of the consultant, recipient of the said income, shall be the State which shall eliminate the double taxation in accordance with the provisions of Article 22(2)(a) of the Convention.
In this case, the income obtained by non-residents in Spanish territory derived from the lease of real estate without constituting an economic activity is subject to taxation in Spain, in accordance with the provisions of article 13.1.g) of the revised text of the Non-Resident Income Tax Law, approved by Royal Legislative Decree 5/2004, of 5 March, (BOE of 12 March), hereinafter TRLIRNR, which provides as follows:
"The following are considered to be income obtained in Spanish territory:
g) Income derived, directly or indirectly, from real estate located in Spanish territory or from rights relating thereto.
In accordance with the provisions of article 27 of the TRLIRNR, such income accrues "when it becomes due or on the date of collection, whichever is the earlier". Income obtained without a permanent establishment must be taxed separately for each total or partial accrual of the income subject to tax.
On the other hand, article 28 of the TRLIRNR states, in section 1, that "taxpayers who obtain income in Spanish territory without a permanent establishment shall be obliged to file a tax return, determining and paying the corresponding tax debt, for this tax in the form, place and time established. Specifically, the model for the declaration of income obtained in Spain by non-residents without a permanent establishment is generally 210, regulated in Order EHA/3316/2010, of 17 December (Official State Gazette of 23 December), which, in article 2, states that several income obtained by the same taxpayer may be grouped together provided that it corresponds to the same income type code, comes from the same payer, the same tax rate is applicable to it and, furthermore, if it derives from an asset or right, it derives from the same asset or right. In no case can grouped income be offset against each other. The grouping period will be quarterly in the case of self-assessments with a result to be paid, or annual in the case of self-assessments with a zero quota or with a result to be returned.
According to the above, this seems to be the case here, as it is all about real estate rentals.
The possibility of making a single non-resident income tax return (hereinafter IRNR) for the total rents collected by the marriage as a whole is considered.
The IRNR is a direct tax levied on income obtained in Spanish territory by individuals and non-resident entities. The TRLIRNR does not contemplate the possibility of joint taxation as an option. For this reason, joint tax returns may not be filed with the spouse, if applicable. Each spouse is an independent taxpayer and must therefore file separate returns.
Deductible expenses
On how to calculate deductible expenses in the case of rental income, Article 24.1 of the TRLIRNR states that "the taxable base corresponding to the income that the taxpayers for this tax obtain without the mediation of a permanent establishment will be constituted by its full amount, determined in accordance with the rules of the revised text of the Personal Income Tax Law, approved by Royal Legislative Decree 3/2004, of 5 March, without the multiplier percentages of article 23.1 of the said revised text being applicable, nor the reductions".
As they are resident in the United Kingdom, a European Union State (BREXIT has not yet been applied) with which there is a double taxation avoidance agreement with an information exchange clause, Article 24(6) applies:
“6. In the case of taxpayers resident in another Member State of the European Union, the following special rules apply:
1ª. For the determination of the taxable amount corresponding to income obtained without a permanent establishment, it may be deducted:
a) In the case of natural persons, the expenses provided for in Law 35/2006, of 28 November, on Personal Income Tax and partial amendment of the laws on Corporation Tax, Non-Resident Income Tax and Wealth Tax, provided that the taxpayer proves that they are directly related to the income obtained in Spain and that they have a direct and inseparable economic link with the activity carried out in Spain".
Tax liability
The tax liability shall be determined in accordance with the provisions of article 25.1.a) of the TRLIRNR, which establishes that the tax liability shall be determined in accordance with the provisions of article 25.1.a) of the TRLIRNR, which establishes that the tax liability shall be determined in accordance with the provisions of article 25.1.a) of the TRLIRNR:
"The tax liability shall be obtained by applying the following tax rates to the taxable base determined in accordance with the foregoing article:
a) In general, 24%. However, the tax rate shall be 19% in the case of taxpayers resident in another Member State of the European Union or of the European Economic Area with which there is an effective exchange of tax information, under the terms set out in section 4 of the first additional provision of Law 36/2006, of 29 November, on measures for the prevention of tax fraud.".
Therefore, the IRNR tax base for non-resident taxpayers without a permanent establishment will be determined in accordance with the rules of Law 35/2006, of 28 November, on Personal Income Tax and partially amending the laws on Corporate Income Tax, Non-Resident Income Tax and Wealth Tax (BOE of 29 November), hereinafter LIRPF.
Thus, section 1 of article 23 of the LIRPF establishes which are the possible deductible expenses. This article is developed in Articles 13 and 14 of the Personal Income Tax Regulations approved by Royal Decree 439/2007, of 30 March (BOE of 31 March).
Article 13 of the Regulations establishes:
"The deductible expense for determining the net return on real estate capital will be all the expenses necessary to obtain it.
In particular, they shall be considered included among the expenses referred to in the previous paragraph:
Interest on borrowed capital invested in the acquisition or improvement of the property, the right or power of use or enjoyment from which the income derives, and other financing expenses, as well as repair and conservation expenses.
For these purposes, they shall be considered repair and maintenance expenses:
Those made regularly with the aim of maintaining the normal use of material goods, such as painting, plastering or arranging installations.
The replacement of elements, such as heating installations, elevator, security doors or others.
Amounts destined for extension or improvement will not be deductible for this concept.
The total amount to be deducted for the expenses provided for in this subparagraph (a) may not exceed, for each item or right, the amount of the full income obtained.
The excess may be deducted in the following four years, but may not exceed, together with the expenses for the same concepts corresponding to each of these years, the amount of the full income obtained in each of the same, for each good or right.
Non-state taxes and surcharges, as well as state taxes and surcharges, whatever their denomination, provided that they affect the computed yields or the goods or producer rights thereof and are not of a sanctioning nature.
Amounts accrued by third parties in direct or indirect consideration or as a consequence of personal services, such as administration, surveillance, porter's lodge or similar.
Those caused by the formalization of the lease, subleasing, assignment or constitution of rights and those of legal defence relating to the goods, rights or yields.
Balances of doubtful collection provided that this circumstance is sufficiently justified. This requirement shall be deemed to have been met:
1.º When the debtor is in a situation of insolvency.
2.º When more than six months have elapsed between the moment of the first collection management carried out by the taxpayer and that of the end of the tax period, and there has not been a renewal of the credit.
When a doubtful balance is collected after deduction, it shall be computed as income in the year in which said collection takes place.
The amount of the premiums of insurance contracts, whether civil liability, fire, theft, breakage of glass or others of a similar nature, on the goods or rights that produce the yields.
Quantities destined for services or supplies.
Amounts intended for depreciation under the conditions laid down in the following Article of this Regulation.
Apportion expenses
In the event that the property has not been leased throughout the year, certain of the above expenses, such as interest and other financing expenses, as well as those included in letters b), c), e), f), g) and h) of Article 13 of the Tax Regulations, to determine the deductible amount, shall be prorated according to the number of days of the year in which the property has been leased. The costs of conservation and repair, advertising, those caused by the formalisation of the lease and those of legal defence relating to the property or the income generated by its lease will not be prorated, provided that they are aimed exclusively at the future obtaining of income from the property capital and not at the enjoyment, even temporary, of the property by the owner.
Consequently, for the purposes of determining the taxable base in accordance with article 24.6 of the TRLIRNR, the same rules of pro rata may be applied to annual expenses, taking into account the rental days corresponding to each accrual of income and deducted from the income with which they have a direct and inseparable economic link, for the determination of the taxable base.
As regards the limits on the deduction of interest expenses and conservation and repair expenses, for personal income tax purposes, the total amount to be deducted for the expenses provided for in Article 13(a) of the Personal Income Tax Regulation may not exceed, for each asset or right, the amount of the full income obtained. The excess may be deducted in the following four years, but may not exceed, together with the expenses for the same concepts corresponding to each of these years, the amount of the full income obtained in each of the same, for each good or right.
Therefore, for the purposes of IRNR, the amount of these expenses may not exceed, for each good or right with which they have a direct and inseparable link, the amount of the full income obtained; the excess may be deducted from the returns filed in the following four years.
Tax Identification Number
On the other hand, with respect to the Tax Identification Number that a natural person of foreign nationality must use in their relationships of tax nature or significance, the sixth additional provision of Law 58/2003, General Tax Law (hereinafter referred to as LGT) establishes that, "Any natural or legal person, as well as entities without personality referred to in section 4 of article 35 of this Law, shall have a tax identification number for their relationships of tax nature or significance. This tax identification number shall be provided by the General State Administration, ex officio or at the request of the interested party. Regulations shall regulate the procedure for assignment and revocation, the composition of the tax identification number and the manner in which it shall be used in relations of a tax nature or with tax significance.
For its part, the General Regulation on the Application of Taxes, approved by RD 1065/2007 of 27 July, develops the obligations relating to the tax identification number. Specifically, article 18 states that natural and legal persons, as well as taxpayers referred to in article 35.4 of the LGT, shall have a tax identification number for their relationships of a tax nature or significance. And this obligation is applicable to both residents and non-residents, whenever they carry out, or are going to carry out, operations with tax significance. Article 20 of the aforementioned Regulations establishes: "For individuals who do not have Spanish nationality, the tax identification number shall be the foreigner's identity number assigned or provided in accordance with Organic Law 4/2000, of 11 January, on the rights and freedoms of foreigners in Spain and their social integration, and its implementing regulations.2 The tax identification number shall be the foreigner's identity number assigned or provided in accordance with Organic Law 4/2000, of 11 January, on the rights and freedoms of foreigners in Spain and their social integration, and its implementing regulations.2. Individuals who do not have Spanish nationality and do not have a foreigner's identity number, either temporarily because they are obliged to have one or definitively because they are not obliged to do so, must apply to the Tax Administration for a tax identification number to be assigned when they are going to carry out transactions of a tax nature or with tax significance. This number shall consist of nine characters with the following composition: an initial letter, which shall be the M, intended to indicate the nature of this number, seven alphanumeric characters and an alphabetical verification character. If they do not request it, the Tax Administration may proceed ex officio to register them in the Census of Tax Liable Persons and assign them the corresponding tax identification number.".
B. Value Added Tax
FIRST: The rent of the house does not include services of the hotel industry.
One of Law 37/1992, of 28 December, on Value Added Tax (BOE of 29 December), the aforementioned tax will be applied to the supply of goods and services in the spatial area of the Tax by businessmen or professionals for consideration, on a regular or occasional basis, in the development of their business or professional activity, even if they are carried out in favour of the members, associates, members or participants of the entities that carry them out.
Article 5, paragraph two of the same Law provides that "business or professional activities are those that imply the ordering on their own account of material and human factors of production or one of them, with the purpose of intervening in the production or distribution of goods or services".
On the other hand, paragraph one of the aforementioned article 5 contains a specific and specific definition of the concept of entrepreneur or professional, considering as such for the purposes of said Tax, among others, "those who make one or more supplies of goods or services that involve the exploitation of a tangible or intangible asset in order to obtain continuous income over time. In particular, lessors of goods shall be treated as such.
Likewise, Article 11 of Law 37/1992 defines the provision of services as any transaction subject to Value Added Tax which, in accordance with the Tax Law, is not considered to be the delivery, intra-community acquisition or import of goods. In particular, in accordance with number 2 of section two of the aforementioned article 11, the provision of services is considered to be "the leasing of goods, industry or business, companies or commercial establishments, with or without an option to purchase".
THIRD - Article 70, paragraph one, number 1 of the Value Added Tax Law provides that the following services shall be deemed to have been provided in the territory where the Tax is applied:
“1º. Those related to real estate that are located in the mentioned territory.
The following services, among others, shall be considered to be related to real estate:
a) The lease or assignment of use by any title of said goods, including furnished dwellings. (…)
h) Accommodation in hotel, camping and spa establishments."
The system of Article 70 one, 1 of the Tax Act (now Article 47 of Directive 2006/112/EC on the common system of value added tax) precludes the scope of this special rule from being extended to any provision of services which has a link, however weak, with immovable property, since there are a large number of services connected in one way or another with immovable property.
The Court of Justice of the European Union in its judgment in Heger Rudi GMBH (Case 166/05) states that only the supply of services which have a sufficiently direct connection with immovable property fall within the scope of Article 9(2)(a) of the Sixth Directive (now 47 of Directive 2006/112/EC and Article 70.1.1 of the Tax Act). This type of relationship characterises, on the other hand, all the supplies of services listed in that provision.
It is evident that the questioned services of renting a dwelling, relating to a property, are considered to be directly related to immovable property, since Article 70.1.1(a) of the Tax Law itself includes the services of renting furnished dwellings.
Consequently, the rental service of the dwelling, relating to a property located in the Spanish territory of application of the tax (Peninsula and Balearic Islands) is understood to be carried out in the territory of application of the Tax, and will therefore be subject to Value Added Tax.
FOURTH - On the other hand, article 20, section one, number 23, of Law 37/1992 establishes that the following operations, among others, are exempt:
"23º. Leases considered as services in accordance with the provisions of Article 11 of this Law and the creation and transfer of rights in rem of enjoyment and enjoyment, the object of which is the following goods: (...)
b) Buildings or parts thereof intended exclusively for housing or for subsequent rental by entities managing public housing support programmes or by companies covered by the special regime of Entities dedicated to the rental of housing established in the Corporate Income Tax. The exemption shall be extended to garages and annexes accessory to dwellings and furniture, rented jointly with the former.
The exemption shall not apply: (…)
(e') Leases of furnished apartments or dwellings where the lessor undertakes to provide one of the complementary services specific to the hotel industry, such as restaurant, cleaning, laundry or similar services.
f') Leases of buildings or parts of buildings to be subleased. (…).”.
According to the reproduced article, the regulation contained in this exemption case is not an objective regulation, which takes care of the leased property to determine its origin or not, but it is a finalist exemption that makes its possible application depend on the use of the building, being the mandatory exemption when the actual purpose of the object of the contract is housing, but not in any other case.
The effective use of the building or part of the building as a dwelling, although a necessary requirement for the application of the exemption under discussion, is not, however, a sufficient requirement, since according to the wording of the precept, it must be understood that the use of the building as a dwelling must be carried out necessarily and directly by the tenant, final consumer for the purposes of Value Added Tax, and not by third parties.
Therefore, leases of buildings, which in turn are the object of a subsequent assignment by the lessee in the exercise of a business activity, cease to be exempt from Value Added Tax to become subject and not exempt, regardless of whether the subsequent assignment of the same is made under a new lease contract, letter f´) of the provision, or under another title.
It must be understood that there is a subsequent transfer by the lessee in the exercise of a business and professional activity, so that the lease is subject and not exempt, among others, in the following cases:
- Assignment of building used for housing by an employer in favour of its employees or their relatives.
- Transfer of the building intended for housing for the exercise of a business or professional activity.
- Transfer of the building destined for housing for any other onerous title.
On the other hand, when the tenant of a dwelling does not have the status of businessman or professional, since he exclusively delivers goods or provides services free of charge, as indicated in article 5, paragraph one, letter a) second paragraph, of Law 37/1992, or acts, for any other reason, as a final consumer, whether a natural person or a legal person, the renting of the dwelling will be exempt, without prejudice to this final consumer allowing the use of the dwelling by other persons.
On the other hand, according to repeated pronouncements of this Directive Centre, all in all, reply to the binding consultation of 17 February 2015, number V0600-15, when the lessor undertakes to provide complementary services specific to the hotel industry during the duration of the lease, the dwelling rental services will be subject to and not exempt from Value Added Tax.
Article 20.Uno.23 of Law 37/1992, includes as examples of complementary services of the hotel industry, among others, restaurant, cleaning, laundry and other similar services.
These are services that constitute a normal complement to the accommodation service provided to clients, so they do not lose their character as a hotel service. Accommodation services are characterised by extending customer care beyond the mere provision of a building or part of it.
In this way, the activity of accommodation is characterised, unlike the activity of renting dwellings, because it normally includes the provision of a series of services such as reception and permanent and continuous attention to the client in a space intended for this purpose, periodic cleaning of the building and accommodation, periodic change of bed and bath linen, and making other services available to the client (laundry, custody of suitcases, press, reservations, etc.), and, sometimes, the provision of food and catering services.
On the other hand, the following are not considered to be complementary services specific to the hotel industry:
- Cleaning service and laundry services for the apartment provided at the entrance and exit of the period contracted by each tenant.
- Cleaning service for the common areas of the building (portal, stairs and lifts) as well as for the urbanization in which it is located (green areas, access doors, sidewalks and streets).
- Technical assistance and maintenance services for possible repairs to plumbing, electricity, glassware, blinds, locks and electrical appliances.
Consequently, the rental of the dwellings will be subject to and exempt from Value Added Tax in the Spanish territory of application of the Tax, to the extent that the tenant is going to use it as a dwelling for a period of time and services specific to the hotel industry are not going to be provided under the terms described.
FIFTH - Finally, regarding the obligations that may affect the Taxpayer, article 164 of the Tax Law states that:
"One. Without prejudice to what is established in the previous Title, the taxpayers of the tax will be obliged, with the requirements, limits and conditions that are determined by regulation, to:
1. Submit declarations relating to the commencement, modification and cessation of the activities that determine their subjection to the tax.
2. To request from the Administration the tax identification number and to communicate and accredit it in the cases that are established.
3.º Issue and deliver an invoice for all its operations, adjusted to what is determined by regulation.
4. To keep the accounts and records established, without prejudice to the provisions of the Commercial Code and other accounting standards.
To present periodically or at the request of the Administration, information relating to its economic operations with third parties.
6. Submit the corresponding tax returns and pay the amount of the resulting tax.
Without prejudice to the provisions of the preceding paragraph, taxpayers must file an annual summary return. (…).”.
However, in relation to the presentation of the census declaration, Article 3 of the General Regulations on Tax Management and Inspection Procedures and on the Development of Common Rules for Tax Application Procedures, approved by Royal Decree 1065/2007 of 27 July (BOE of 5 September), establishes that:
"The Census of Tax Liable Persons shall consist of all the persons or entities that must have a tax identification number for their relationships of a tax nature or with tax significance in accordance with the provisions of article 18 of these regulations.
2. The Census of Entrepreneurs, Professionals and Retainers will be made up of persons or entities that carry out or are going to carry out in Spanish territory any of the activities or operations mentioned below:
a) Business or professional activities. Such activities shall be understood as those whose performance confers the status of businessman or professional, including agricultural, forestry, livestock or fishing activities.
Those who exclusively lease properties exempt from Value Added Tax, in accordance with article 20.1.23 of Value Added Tax Act 37/1992, of 28 December, will not be included in the Census of Entrepreneurs, Professionals and Retenedores, provided that their carrying out does not constitute the development of a business activity in accordance with the provisions of the regulations governing Personal Income Tax (Impuesto sobre la Renta de las Personas Físicas). Neither will be included in this census those who make occasional deliveries of new means of transport exempt from Value Added Tax by virtue of the provisions of article 25.1 and 2 of its regulatory law, and intra-community acquisitions of goods exempt by virtue of the provisions of article 26.3 of the same law. (…).”.
On the other hand, in relation to the obligation to issue an invoice, the regulations governing invoicing are contained in the Regulations governing invoicing obligations, approved by Royal Decree 1619/2012 of 30 November (Official State Gazette of 1 December).
Article 3 of the Tax Regulations, relating to exceptions to the obligation to issue an invoice.
"There shall be no obligation to issue an invoice, except in the cases contained in section 2 of article 2 of these Regulations, for the following operations:
a) Transactions exempt from Value Added Tax by virtue of the provisions of article 20 of its regulatory law, with the exception of the transactions referred to in section 2 below. However, the issue of an invoice shall be obligatory for transactions exempt from this Tax in accordance with article 20.Uno.2º, 3º, 4º, 5º, 15º, 20º, 21º, 22º, 24º and 25º of the Tax Law. (…).”.
Article 71 of the Tax Regulations approved by Royal Decree 1624/1992 of 29 December (BOE of 31/12/1992) establishes that:
"Except as established in relation to imports, taxpayers must determine the tax debt themselves by means of tax returns adjusted to the rules contained in the following sections.
Employers and professionals must submit the periodic tax returns referred to in sections 3 and 4 of this article, as well as the annual summary return provided for in section 6, even in cases in which there are no accrued quotas and no deduction is made from supported or paid quotas.
The obligation established in the preceding paragraphs shall not apply to those taxpayers who carry out exclusively the exempt transactions included in articles 20 and 26 of the Tax Law. (…).”.
In accordance with the foregoing regulations, in the event that the provision of housing rental services is developed and these are subject to and exempt from Value Added Tax, it shall not be obliged to present a census declaration, issue an invoice, or submit periodic declarations or the annual summary declaration of operations, in the terms indicated.
Finally, it should be borne in mind that the concept of permanent establishment is regulated in article 69.Three of Law 37/1992, of 28 December, on Value Added Tax which establishes the following:
"For the purposes of this tax, any fixed place of business where businessmen or professionals carry out economic activities shall be considered a permanent establishment.
In particular, they shall have this consideration:
g) Real estate exploited under lease or under any other title".
This relationship must be understood as merely enunciative and not exhaustive, as can be inferred from the same precept and this Directive Centre has repeatedly pointed out (Consultation 1000-03, of 19 July 2003).
In any event, the concept of permanent establishment must be considered to be a concept of Community law, the interpretation of which cannot be attributed to the Member States, since it is a uniform concept at Community level, which forms part of the purpose of Directive 2006/112/EC, which is none other than to establish a common system of value added tax, and the aforementioned provision must in any event be supplemented by the provisions of Regulation 282/2011/EC of 15 March, Article 11 of which defines the concept of permanent establishment for the purpose of locating services.
In accordance with the foregoing, lessors who, although not having their place of business in the territory in which the tax is levied, have a leased property in that territory, shall be deemed to be established in that spatial
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