How would Spain's proposed 21% VAT rate on tourist flats work?

A new proposal by the Spanish government could mean that up to 80 percent of tourist flats in Spain pay VAT, known as IVA (El Impuesto sobre el Valor Añadido) in Spanish.

The ruling Socialist-led coalition recently presented a draft bill intended to ease access to housing, especially rentals, among Spaniards. The post-pandemic increase in the number of tourist flats (pisos turísticos) in Spain have been blamed by many across the country for cutting market supply and raising prices.

LISTED: The taxes Spain wants to introduce to fix the housing crisis

Among the proposed measures, charging VAT on tourist flats is an attempt to dissuade landlords from renting to tourists. Currently, holiday flats that also provide hotel services, such as cleaning or bed linen changes, must pay the same VAT as a hotel, a rate of 10 percent.

However, the new proposals would change that quite substantially. The government wants to impose a higher rate of 21 percent on tourist flats rented to the same tenant for no more than 30 nights in municipalities with over 10,000 inhabitants, even if they do not provide hotel services.

If the bill goes through the Spanish Congress and is approved, around 295,000 tourist flats will be obliged to pay the new rate.

The text proposes that short-term rentals (of less than 30 nights) should be taxed like any other economic activity. This affects around 80 percent of all registered tourist homes in Spain and more than 368,000 in total, according to the latest data from Spain’s national stats body, INE.

“It is a matter of tourist homes being taxed as what they are: an economic activity,” said Isabel Rodríguez, Minister for Housing and the Urban Agenda, in a press conference presenting the draft legislation.

The idea will be debated in Congress during the first half of June. However, the measure, if passed, will very likely be challenged in court as some tax experts warn that the measure is unconstitutional, according to reports in the Spanish media. That means the measure is far from certain to happen.

What’s the current law on VAT for holiday rentals in Spain and what would change?

As currently constructed, the law means that VAT is only levied on holiday rentals when the accommodation offers extra-hotel services – servicios extrahoteleros in Spanish — and at the lower 10 percent rate.

In most cases, the services provided by managers and owners of holiday homes are limited to handing over the keys, cleaning at each departure, and little more. In these cases, short-term tourist rentals are legally equivalent to renting a flat or dwelling and are therefore exempt from VAT.

However, when hotel services are offered like daily cleaning or breakfasts, VAT has to be applied.

Without the reform pushed by the government, the Spanish tax authorities do not consider the length of stay as a condition or determinant when declaring the rental income of a holiday home.

The government wants to widen the net of holiday rentals that pay VAT while simultaneously increasing the rate by more than double.

Which holiday rentals pay VAT?

Under the current rules, according to Spanish property website Idealista other circumstances that make a holiday rental liable to VAT include:

• Reception services and ‘permanent immediate attention’ to clients
• Regular cleaning of private and communal areas while the guest is staying in the property
• Change of towels and sheets included at least once during the stay.
• Light catering such as breakfast, room service, minibar etc
• Complementary services managed by the accommodation like laundry and luggage storage services

Why does the government want to do this?

By widening the number of tourist flats that can be charged VAT, the Spanish government aims to, firstly, increase tax revenues, but secondly, and perhaps most importantly, disincentivise landlords from putting their property on the tourist market as opposed to the long-term rental market.

However, the move also mirrors European legislation. The European VAT in the Digital Age directive states that, as of 1 July 2028, all continuous rentals of up to 30 nights should be included in the hotel sector.

LISTED: The taxes Spain wants to introduce to fix the housing crisis