Spain Moves Toward 21% VAT on Short-Term Rentals

For some time, the Spanish government has been considering subjecting short-term vacation rentals to a 21% VAT rate as a means to address the growing housing issues and ensure that more properties are made available for long-term rentals. As part of the effort to introduce these rules, the Socialist Parliamentary Group submitted a draft bill to eliminate the current VAT exemption that applies to these rentals.

Key Proposed Measures

While current rules and regulations exempt short-term rentals from VAT unless hotel-like services such as cleaning or reception are provided, in which case a reduced 10% VAT rate applies. If the proposed bill is approved and implemented, short-term rentals of fewer than 30 nights in municipalities with more than 10,000 residents would be taxed at the standard 21% VAT rate, regardless of whether hotel-style services are included.

In practice, this means that all larger municipalities, such as Malaga, Barcelona, Marbella, or Ibiza, would be taxed at 21%, aligning them with other taxable commercial services and removing the more favorable tax treatment they previously enjoyed.

Consequently, landlords offering these rentals, regardless of whether they are resident or non-resident, will become liable for collecting and remitting VAT, as well as submitting the necessary VAT returns and other relevant documents. However, they will be able to deduct input VAT on related expenses.

Conclusion

The proposed measure is part of a broader effort to create a level playing field between private short-term rentals and traditional hospitality businesses, while also addressing the strain that tourism places on the housing market and contributing to solutions for the ongoing housing shortage. 

By proposing a 21% VAT rate on short-term rentals, Spanish policymakers aim to make these rentals less financially attractive compared to hotels, which in the long run impacts both property owners and rental platforms by reducing the competitiveness of vacation rentals in the market.

Source: BDO, VATabout