Corporate rental or leasing companies is a recurring topic that usually generates confusion. This article provides useful information for landlords and investors who rent or are interested in renting to businesses.

Specifically, we will talk about the regulatory change of December 2016 on VAT and the necessary requirements in the lease contract to be exempt from it.

Corporate rental leasing to companies for habitual residence

It is common for companies to rent housing for their employees or managers, whether for reasons of permanent or temporary displacement. It is normal to have trips between work centers or for other internal needs of the company.

The jurisprudential doctrine has addressed the legal classification of these leases, which is decisive for knowing the applicable legal regulations.

Rental to companies for habitual residence. The Central Economic-Administrative Court (TEAC) issued a resolution in December 2016, confirming another previous resolution from September of the same year, which modifies the way in which VAT is applied on this type of rental. Previously, home rentals to companies were subject to 21% VAT in all cases. However, the TEAC determined that rentals for employees’ habitual residence use are exempt from VAT.

Requirements for VAT exemption for rental to a company.

In order for the house or apartment rented by a landlord or owner to a company for its employees to be exempt from VAT, the following conditions must be met in the rental contract:

• The rental cannot have any other purpose than to serve as a residence for the employee and his or her family. It must be specified that the rental is for residential use only. This makes it clear that there is no possibility of carrying out any kind of business or commercial activity in the rented property.
• The contract must indicate the person or persons who will live in the property. This means that the employee of the company who will be staying in the house must be clearly identified.
  It is not enough to say “for use by company employees”. It must literally state the name and surname of the employee who will be living there. This will make it clear that it is for exclusive use as the home of an identified natural person.
• The rental contract must expressly prohibit the possibility of sub-renting or cession the property to other persons than those specified in the contract.
  This clause is essential as it guarantees that the property will be used exclusively as the home of the identified employees. By legally preventing subletting, any commercial or business use of the property is prevented.

In summary, if the rental is for exclusive use as a residence and the natural person who will reside there is identified, it can be considered exempt from VAT according to these resolutions.

Additional tax advantage for long term renting from a company for its employees

With the rental of housing to a company for its employees, the TEAC allows the application of the 60% reduction of the positive net income for the rental of properties intended for housing in personal income tax when the landlord or owner is a natural person and the lessee or tenant is a legal entity.

As we said previously, as long as it is proven that the rent is intended for the housing of a natural person identified in the contract (employee of the company/society). This represents an additional tax advantage in these contracts, where the company appears as a lessee but the rental or use goes to an employee.

More public information on leasing to companies for employees.

There are many useful online resources that cover the topic of corporate rental and the requirements for VAT exemption. Here are a some recommended links:

Idealista – Housing news
El Economista – Corporate rental: is it exempt from VAT?
Blog Jorge Cortés Abogados – rentals to companies

Leasing to companies for employees through a seasonal contract.

Although the 60% reduction in personal income tax only applies to the “company housing rental contract model for employee” and not for the rental of habitual residence. There are many other advantages inherent in renting seasonal housing for employees that can far outweigh the benefits of a tax break. In this article we offer an overview of the profitability of seasonal rentals vs. habitual residence.

Company housing rental contract templates for employee

There are actually two models that you have to have when you rent to companies, one is very similar to the usual housing for the LAU between individuals and the second is a seasonal contract that can be with or without services included.

If you want to build a “company housing rental contract model for employee for habitual residence” or another “company housing rental contract model for employee for seasonal housing”, contact our landlord department in Madrid. Don’t worry and discover how our services for property owners in Madrid can help you.

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