Spain clampdown on tourist rentals will hit Irish property owners
Many Irish property owners have been short-term letting their properties but the authorities are compelling owners to register tourist properties and pay taxes
The move to regulate was designed to improve accommodation quality, reduce tax fraud and prevent unfair competition.
Spanish officials are about to begin on-the-ground inspections of unlicensed tourist rentals. The move follows the introduction in early 2016 of a new law compelling owners to register tourist properties under the newly introduced Vivienda con Fines Turísticos (VFT). It is likely to impact Irish property owners who purchased during the boom and have since been unable to sell, and instead are short-term letting their properties.
The law, introduced by the Registro de Turismo de Andalucía (RTA), requires that all property being rented out on a short-term basis must be registered. Periods of less than two consecutive months at a time are deemed short term. Longer periods are covered by Ley de Arrendamientos Urbanos for residential lettings.
The move to regulate was designed to improve accommodation quality, reduce tax fraud and prevent unfair competition. Local media has reported that tax authorities are preparing to carry out unannounced property inspections in person over the upcoming tourist season. These will be carried out by the Agencia Estatal de Administración Tributaria (AEAT), referred to as the Agencia Tributaria, the Spanish equivalent of Ireland’s Revenue Commissioners.
Irish property owners
Since the property crash many Irish property owners in Spain have been renting out properties along the coast. Many of these were purchased under different economic circumstances when long-term ownership was not the aim, instead the intention was to flip (sell quickly for a profit on or prior to the sale’s completion).
But following the crash, owners either couldn’t sell the properties or couldn’t do so at a price that would cover their loans, consequently many of these are now being rented out and the income is undeclared. Property letting through an agency in Spain can be expensive, and the advent of cheaper online DIY services has caused an explosion in short-term rentals. Airbnb, in particular, has been very high profile and has regularly been the target of ire from local councils, particularly along eastern coastal Spain.
The obligation to upgrade rental properties to the required standard and register them has been contentious since its introduction in Andalucia in 2016. At the time of the introduction there were widespread claims that it was merely an instrument to tax small-scale landlords out of the market. The process involves proportionally larger costs for individual owners than larger, professional operators.
It was also viewed as a further boost to the hotel and wider tourist industry’s perceived monopoly on tourist accommodation. There are two separate agencies now focused on targeting unlicensed tourist properties in Spain. Local councils have been very proactive in tracking down evaders. They claim that unlicensed property deprives regions of income and provides tourists with sub-par accommodation. Secondly, the Agencia Tributaria wishes to know about rental income which it believes is not being declared and is therefore untaxed.
Nicola Elrich of Spain-Holiday.com says that each region has specific laws, some of which are quite strict. Rentals in Barcelona are regulated very tightly and both Catalonia and the Balearics have issued Airbnb with large fines. Madrid, Malaga, Seville and Valencia are all examining regulation to curb tourist rentals.
Elrich says that registration in Andalucia is free, which is not the case in other jurisdictions. If owners have more than three properties within a 1km radius they need to register them as Apartamento Turistico, a category to which more stringent regulations apply such as fire escape access and air-conditioning in all rooms. She says that, in general, the laws have led to a better quality product for tourists which, in the longer term, will lead to a stronger industry.
Airbnb claims most of the people using the platform are homeowners trying to make some extra cash or make ends meet. Councils claim it actively enables commercial landlords to continue to drive up rents and displace locals.
I have a property in Spain that I short-term let, what if I don’t register?
The agencia will trace owners either through online platforms or via the land registry. On discovery of an unlicensed premises they will request rental data from the promoters. From July onwards short-term rental platforms are required to provide financial information and will need to include licence numbers with advertised properties. They are also required to send historic data to January 1st last if requested. This will make it almost impossible to promote unregistered properties.
The implications for those with unregistered rental properties, even if rented only periodically, are pretty serious. Firstly, there are substantial fines. Notionally these can be up to €180,000, but to date have been much lower than this.
Any income that can be proven will be subject to Spanish income tax and applicable interest. This information will subsequently be available to the Irish tax authorities, on the basis of an information sharing agreement between tax authorities within the EU.
Any balance of tax and interest will be due at home. In addition, if the property owner wishes to continue renting out the property, they will need to undertake necessary upgrades to the property to meet the quality standards required to become an official tourist rental.