As indicated in the first part on “Renting out properties in Spain,” the rental of properties in Spain is becoming more complicated every day, particularly in vacation rentals. In this second and final part, we will discuss the main points Rental administrative requirements and Other points of interest.
2 Rental administrative requirements
The aspect of bureaucracy is crucial when deciding to rent short-term or long-term. Here are some aspects:
2.1 Notification Requirement
Since the announcement of Royal Decree 933/2021 on October 26, 2021, all owners of properties made available for vacation rentals, are obligated to identify, register, and report guests to the local police. Failure to comply may result in high fines.
2.2 Registration Requirement
In most regions of Spain, it is now mandatory to register a vacation rental property in a designated general registry. Some registrations (e.g., in the region of Murcia) are relatively straightforward, while others (e.g., in Valencia or the Balearic Islands) can be considered complex and costly registration procedures.
Many registration procedures already demand that the property meets specific minimum standards, including minimum surface areas, fire safety measures, escape routes, facilities, and electronic equipment. Some regulations even require the availability of tourist information.
Here is an article on registration in Valencia and the various requirements that properties must meet:
2.3 Licensing Requirement
There is a new trend among municipalities to regulate the rental of vacation homes. This means that a license must be issued to rent the property to holidaymakers. For example, in the region of Valencia, this licensing requirement (or more accurately, a statement of suitability for the property within the zoning plan) is linked to the registration obligation at the regional level. This implies that without a declaration from a Valencia municipality confirming the property’s suitability for vacation rental, registration will not take place.
3 Other points of interest
3.1 Homeowners’ Association
By Royal Decree 7/2019, dated March 1, 2019, the Spanish government amended the current legislation on apartment rights. Since then, homeowners’ associations have the option to include in their statutes a prohibition on vacation rentals. This can become a reality with a qualified majority of 60% of the owners. An owner who rents the property before the amendment of the statutes cannot be disadvantaged in their activity. However, if that owner wishes to sell the property, the new owner cannot rent it out anymore.
A problem may arise when people buy a new home in a situation where the Homeowners’ Association has not been established or has no statutes yet. Imagine receiving your new home with the intention of renting it to vacationers, only for the Homeowners’ Association to decide later that this is prohibited…
3.2 Resident or Non-Resident
In general, the owner’s residency status (domestic taxpayer) does not matter for the topics discussed, except for companies. There is a distinction between a Spanish company and a foreign company. The foreign company is fiscally treated similarly to a natural person who is not a resident.
3.3 Company or Natural Person
The only difference we observed earlier in the taxation of long-term rental versus vacation rental, namely the 60% or 50% advantage for permanent rentals, oddly does not apply to companies. This means that landlords considering making a property available for long-term rental through a company might contemplate establishing that company abroad. A foreign company is fiscally treated similarly to a natural person who is not a resident.
For natural persons, there is a minor practical difference in residency status. Non-residents must report rental income quarterly, while residents only need to do this once a year. Otherwise, there are no fiscal differences.
The choice to conduct the activity through a company or as a natural person involves several aspects. The company offers limited liability, although not particularly relevant in a rental activity, but still, one never knows. The company incurs higher maintenance costs (accounting, registration, establishment, among others), and financing a company is more challenging today. Nevertheless, there are advantages. The primary benefit of renting through a company is that it constitutes a separate asset, easier to transfer to children or a buyer if the shares are held by a foreign holding.
3.4 Rental Protection
Vacation tenants do not have rental protection. Legislation governing rental protection excludes vacation rentals.
Under the current legislation, long-term tenants have rental protection for 5 years if the landlord is a natural person and 7 years if the landlord is a company. A natural person landlord can override this protection if the property is needed for personal use. The property can only be reclaimed for personal use if the owner is a natural person. Companies do not have the right to terminate the renting out due to personal use.
- If the goal is vacation rental of one or two properties, in my opinion, the owner is best suited to practice this rental as an individual. However, if it involves multiple properties, I would recommend conducting the activity through a Spanish company;
- If the goal is long-term rental of one or two properties, I would recommend engaging in this activity as an individual. However, if it concerns multiple properties, I would suggest conducting the activity through a foreign company, which is treated as a foreign taxpayer or non-resident in Spain;
- If the goal is to maximize rentals, whether vacation or long-term, for one or two properties, I would not incorporate this activity into a company. However, if it involves multiple properties, I would recommend conducting the activity through a foreign company;
- If the goal is to appoint an intermediary who sublets the properties, uncertainties in the fiscal realm may arise.
Roeland B.C. van Passel