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In previous articles I
mentioned the failing real estate and tourist industries.
Although the number of tourist visitors has increased, travel habits
have changed so this is not really an increase at all because the length
of stay is shorter. |
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Added to that the huge number of new properties built in the past decade
has created a critical excess of supply over demand - in fact a self-catering
accommodation bubble!
The
result is that the hypothetical demand per property has
dropped from 21 weeks (in 1997) to less than 5 weeks now.
The problem has no obvious short-term solution - to fill all
of the available tourist beds, and return to the golden era
of the 80's, would require a threefold increase to the
number of visitors.
Such an increase is not possible because this would equal
the combined total of the world's top three destinations
(France, Spain and USA).
The authorities are certainly
aware but have not seemed inclined to do anything about it.
Substantial tax revenue is lost due to non-payment of IVA (Value
Added Tax), social security contributions, personal
income tax, company profits tax and non-resident owner's tax on rentals.
The losses are due to the huge clandestine
self-catering industry and
its supporting services – Internet advertising sites, cleaners, laundry services etc.
as well as the maintenance of pools & gardens, painting and even building
improvements, extensions etc.
There could be other
considerations -
Significant tax revenue is derived from
tourist spending.
Construction, real estate and tourism account for a major
portion of the workforce.
There is a 7% transfer tax every
time a property changes hands!
- Which
could
make the tax revenue lost pale into insignificance!
Perhaps its just a case of not cooking the goose that lays
the golden eggs!
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The Spanish government
is already taking a hammering from the the national and
international press for permitting the "land grab" and "real
estate corruption" scandals.
Unemployment will increase
because of the redundant construction sector.
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The treasury will face falling revenues
from taxation and social security contributions.
Increasing pressure will be
applied by trade associations (who’s members are also hurting).
Something
has to be done before the whole economy is drawn into
recession.
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The time
has come for Spain to clean up the act and properly regulate
tourism and real estate.
This would likely include the clandestine tourist renting
sector and associated activities.
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Registration with the Tourist Authority:
The procedure varies from one autonomy to the other but it
is simple procedure and free.
Most areas are currently revising the
regulations applying to self-catering renting.
The Valencia
Autonomy (Costa Blanca and Costa Azahar) is studying a new
draft of the law which should come into force early in 2008.
The draft excuses the need for registration by
direct-renting owners and introduces the obligation for them
to comply with certain parameters relating to quality,
health and safety.
Payment of Taxes: One often hears fairy stories like
"I don't have to pay tax because I rent offshore" or ". .
. the rental is paid outside of Spain".
This is obviously
untrue. Spanish tax law states clearly
that the renting activity takes place in Spanish
territory, the property is situated there also and rentals
are subject to Spanish tax - wherever the money is paid.
The various applicable taxes are -
IVA (Value Added Tax):
The rental element is not subject to IVA but the rate for
services 16%.
There are two different options
-
If the contract or bill is for rental and services
combined then the rate is 7%.
If the contract for rental is between the property
owner and the client (for the client's own occupation)
then the operation is not subject to IVA and the services,
if provided by a 3rd party,
should be invoiced separately at 16%.
Personal Income Tax (IRPF): All property owners
(resident or non-resident) have to make an annual
declaration of IRPF. Income from rentals has to be
declared in either case (wherever the rental income is
received).
Additionally there is a retention scheme on rentals
received and all owners are obliged to declare and pay on
a quarterly basis all rental received during the quarter.
Important to Note: Three sensible options are
suggested below.
In every case the services and agents commission are
deductible - as long as they are defined correctly in the
rental contract and the owner has a bill from a valid
company and the corresponding IVA (Value Added Tax) is
shown.
This could make a big difference to
the amount of tax to be paid.
A Summary of Tax Obligations for Spanish Property Owners.
Mark Stucklin (Spanish Property Insight)
Tax Obligations for UK Residents on Overseas Property.
This is provided by the UK Revenue Service. Other
nationalities should consult their relevant tax authority.
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Not true at all! It has happened
occasionally in the past and is likely to happen more
frequently now! It is extremely easy to detect illegal
rentals! -
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Many direct-renting owners have an
advertisement on the Internet showing 'photos, approx.
location, name and contact phone numbers. So there is no doubt that illegal rentals are
easy to detect. When a tax declaration
is made, either in Spain or the owner's country of
residence, the income could be
zero. Therefore it is stated that the owner is not actively renting the property! So
the tax inspector has reason to think that the property is
being rented and
perhaps has seen the advertisement.
He asks about it, about it, the owner reiterates that
there was no rental income and he just
forgets the whole thing?
Now we all know that they don't
work like that!
What actually happens is that an assessment is generated,
backdated for at least 5 years, with fines, interest and 30 days to
lodge an appeal.
The owner then has to pay or appeal and
try to convince the appeal court that the property was not rented.
Before the appeal is lodged there is no obligation for
the Authority to reveal any
evidence, if any, that they actually have. |
"The authorities
have begun searching rental agents' listings, scanning
small adverts and talking to local businessmen and
hoteliers to find out who is renting out properties and
comparing their findings to people who have registered for
tax.
And thanks to the internet, the taxman's task has become a
lot easier and a lot more lucrative, with holiday rental
sites providing rich pickings."
Spanish eyes on holiday homes
Simon Lambert
This is Money
25 March 2006 |
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I realise that this is getting close to
scare-mongering.
I have to say that I do not know of a single case of
prosecution in Spain. However, I know of several where the
property owner was inspected by the UK Revenue and Customs
Service
and the owners believe that the information came from Spain.
I could well be exaggerating the risk but
suppose that I am right?
Is it all really worth the risk
for so little gain, when the remedies are so simple?
I
may be wrong about this but we did see a lot more such activity during the
recession of the ’90.
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Sorting it all out yourself, making the
declarations and payments, can be complicated and
time-consuming.
If you are not resident then that means
employing a Gestor - more fees and charges.
There are at least THREE simple solutions -
1. Employ a rental agency to carry out your
services and provide clients.
Make sure that the agency is correctly
registered and that provides a "Joint Venture" - type
contract. Most of them do these days now that guarantees are
no longer provided.
I am not inclined to suggest that you should
evade taxes!
Apart from
being illegal there could be serious
consequences, so you have to work it out and decide for
yourself.
The way most rental agencies work -
Rental Contracts: Generally there
are two different ways that an agency contracts rentals
with 3rd party tenants - 1. The agency buys the accommodation
from the owner and resells.
2. The agency acts as an intermediary and contracts on
the owners behalf.
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"The UK Revenue and Customs Service
announced a general amnesty in April 2007
for UK residents with foreign assets,
including second homes."
"It is estimated that at least 300,000 UK
residents own second homes . . ."
"The RCS has promised to restrict
penalties to 10% of the undeclared tax."
"The amnesty expires in June 2007."
"Recent treaties permit the exchange of information
between foreign . . . "
"UK residents have an obligation to
declare and pay tax on their worldwide
income. You should not be taxed twice as
double-taxation treaties exist."
UK Tax Amnesty for Owners of Holiday Homes
Moraira-Info.com
July 2007 |
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The are two different ways the agency
contracts with the tenant -
1. Rental and services included and
the IVA (value added tax is 7%)
2. Rental and services separate.
The rental is not subject to IVA and the services
charged at 16%
Any combination is correct and
acceptable. Important to note that, if the agency works as
an intermediary, the invoice for services to the tenant
proves a rental only without services contract
between the owner and the tenant which is not subject
to IVA. All reservations
are recorded and charted. Some agencies even have
online facilities where the owners can see the
reservations and make their own.
The clients name and the booking agent (if any) are
recorded.
Bookings designated as "Owners" could be family, friends
or clients. If a rental is paid (or not) is not the
concern of the agency.
Reporting: Rentals paid to the owner are reported to
the Tax Authority in Spain. This information may be available
now to the Tax Authorities in other countries.
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Owners Tax
Obligations (Agency Bookings): As far as rentals made
by the agency are concerned everything is resolved and
reported correctly.
The IVA is settled and a certificate of earnings is issued
for the owners tax declaration.
There may (or may not) be a retention against tax held by
the agency but this is deductible in full before the tax
is paid.Owners Tax Obligations
(Own Bookings): The owner must file separately for
these.
However, if the owners bookings are all friends and/or
family (i.e. not paying rental) then there is nothing to
declare. |
NB: With this option
commissions and services are deductible.
2. Employ a tour operator or
self-catering holiday company.
Once
again you should make sure that the company operates
"joint-venture" contracts and that they have facilities in
the resort to provide services for your clients.
Please note that, even though they might
pay you outside of the resort country, you should still
declare any rentals received in Spain and the country
where you are resident.
The same advice applies about how you deal with your own
"occupations".
NB: With this option
only the
rental paid is taxable.
3. Arrange the rentals yourself.
Find
an advertising website or rental agency that works on a
commission basis so the you have a valid bill for their
commission for each client (showing the VAT or IVA)
Employ a valid company to carry out your
services with a valid bill.
NB: With this option
commissions and services are deductible.
My Earnest Recommendation: All owners who rent do so with a
joint venture contract with a bono fide rental agency or
self-catering holiday company.
Apart from resolving issues with the authorities, proper, professional
care is provide for the clients and the property.
Most Important of All - The UK still only
accounts for 40% of visitors to Spain. You will find strong
competition here as the Internet is absolutely saturated
with English-language advertising sites.
The Spanish market (for example) is developing strongly now
that incomes have improved and rental prices have fallen.
Most Spanish, French and German Internet browsers have their
PC set to show pages in these languages - so they probably
won't find you!
Here is the main advantage of also booking through an agency
or tour operator. Most of them have already realised that
there is little point in advertising to less than half of
the market and have pages in at least 4 languages.
There are sure to be those who will say that I am biased as I work for an
established rental agency, but I can
truthfully state that this is not the case.
Rental agencies, tour operators and self-catering holiday companies have been around a long
time, during good times and bad.
When tourism is booming we need more
properties (just like everyone else), give rental guarantees to most and
have good profit margins.
When times are tough we have all the
properties we want and just have to work harder to sell a lot more holidays at
reduced margins but with no risk from the rental guarantees – it's roundabouts
and swings.
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© Mike King July 2007
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