The tourist rental association praises the new VAT because it will professionalize the sector

PalmaThe Balearic Islands tourist rental employers' association is satisfied with the application of a 10% VAT on holiday homes, because it believes that the measure "will further professionalize the sector." The president of Habtur, Antoni Barceló, admits that the new tax may slightly reduce profitability, especially for small owners who directly manage a single home, but considers that the impact will be less negative than it may initially seem. "It is true that you will have to deduct this 10% from the prices already agreed upon, but the measures are aimed at greater professionalization of the sector and that is not bad," he points out.

The change is part of the new state housing package approved by the Council of Ministers and published this Wednesday in the Official State Gazette (BOE). The reform establishes that, starting December 1st, the rental of apartments or furnished homes to the same tenant that do not exceed 30 nights will be taxed with a 10% VAT. Until now, the rental of a tourist home could be exempt from VAT if the owner did not provide services typical of the hotel industry. These services—cleaning during the stay, catering, laundry, and other similar ones—already required paying VAT. With the new rule, the duration of the stay will be sufficient to apply the 10%, even if these services are not offered. Excluded from this is short-term rental within the owner's habitual residence, which will remain exempt.

According to Barceló, this change has another side. When an activity is subject to VAT, the owner can deduct what they pay for expenses linked to that activity. "The owner who pays VAT can deduct it, and with the small investments and expenses you make, you recover the input VAT," he explains. According to the president of Habtur, this may make many owners who until now were reluctant to manage the rental as a business activity "less lazy" about professionalizing it. The possibility of deducting VAT will depend on the degree of connection to the activity of each expense, but the employers' association believes that this can at least partially compensate for the new tax burden.

The Spanish government justifies the change precisely with this argument: that homes intended for tourist stays should be taxed "as the business they represent" and that the tax treatment should approach that of accommodation establishments. The decree introduces another measure regarding tourist apartments: it allows city councils in areas with a stressed residential market to apply a surcharge on the IBI (Property Tax). It may reach 50% for a tourist home, 100% when the owner has two or more, and up to 150% when they have four or more. It is not an automatic surcharge: it will depend on the declaration of a stressed zone and the decision of each city council.

The most profound change, in seasonal rentals

Barceló considers that the part of the reform that may have the most consequences in the Balearic Islands is not necessarily the VAT on vacation rentals, but rather the restrictions on seasonal rentals. "Where it will have the most impact is on seasonal rentals," he points out. These are homes that until now were rented for two, three, or several months using this formula, without necessarily being part of the regulated tourist offer. "The traditional rental in a coastal area, done by local families, usually to the same owner every year," he explains.

The decree redefines this modality. From now on, for a contract to be considered temporary, the tenant must be displaced from their habitual residence for a real and justified cause, which must be accredited and expressly stated in the contract. Furthermore, the owner must prove that this cause exists. If it does not exist or is not correctly recorded, the contract will be considered a habitual residence rental from the beginning, with all the guarantees that this entails for the tenant.

This does not mean that all monthly rentals will disappear. A displaced worker, a person who needs a home temporarily for studies, and other justified causes will be able to continue using it. The regulation aims to prevent the artificial use of the seasonal contract to cover a need that is actually permanent or to evade residential rental regulations. These contracts must last for more than 31 days and, as a general rule, cannot exceed 12 months. If the contract exceeds one year without any cause justifying its temporality, or if the same parties chain more than two consecutive contracts for the same dwelling, the law allows it to be considered as a habitual rental from the first contract.

Barceló sees an especially relevant impact in this formula, especially in Mallorca. "Those people from Palma or the interior who rented for three months," he says, will have to justify that it is a temporary rental and not a way to offer tourist accommodation outside of the regulations. The president of Habtur argues that the difference between one activity and the other should also be based on the tourist services offered. "I have always gone by tourist services. Cleaning, for example," he points out.

The reform also establishes that tourist rentals subject to the sector's regulations remain outside the Urban Leases Act and stipulates that stays may not exceed 30 days in any case, although autonomous communities may establish a shorter duration. With this limitation, the regulation aims to reinforce the separation between regulated tourist accommodation and temporary residential rentals.

More controls for seasonal and room rentals

The new rules do not only affect the duration of rentals. In successive temporary contracts for the same dwelling, rent increases will be limited by the new state reference index for rent updates (IRAV). In areas declared as stressed residential markets, temporary contracts will also be subject to the price limits provided for residential rentals.

The regulation of room rentals is also being tightened. The sum of what is charged for all rooms in an apartment cannot exceed the price that would correspond to the rental of the entire dwelling. And, if it is located in a stressed area, the corresponding price limitations will also apply.

The regulation incorporates other guarantees for temporary tenants: real estate management and contract formalization expenses cannot be charged to the tenant, nor can taxes associated with the dwelling if it is not their responsibility to pay them. Furthermore, the temporary tenant may terminate the contract after the first month with only 10 days' notice and without having to compensate the landlord.

For Habtur, this package consolidates an increasingly clear separation between those who carry out a regulated tourist activity and those who use other rental formulas. Barceló assumes that the 10% VAT will entail an initial cost, especially for small property owners, but considers that the legal vacation rental sector of the Islands is in a position to assume it. "All measures lead towards the professionalization of the sector, which is, ultimately, what we want," he summarizes.

The Royal Decree-Law came into force this Thursday, October 8th, with the exceptions set by the text, while the 10% VAT for rentals of up to 30 nights will not begin to apply until December 1st.