VAT on vacation rentals, mandatory from 2025?

The professionalization of the holiday rental sector in Spain is progressing at full speed, with all that this implies, both positive and negative. In one hand, it is worth noting the increasing quality of the offer, although, in the other hand, it cannot be ignored how, progressively, the entry barrier has been raised.

The latest developments in this regard come from Europe, and that is that, recently, the European Commission has presented a proposal to modernize VAT collection throughout the Union, focusing specifically on passenger transport and tourist housing.

The initiative takes place within the framework of previous ones and with the same purpose, which is none other than to harmonize the regulations on vacation rentals in the twenty-seven Member States of the European Union. Currently, each one has its own rules, which, in some cases, such as Spain, exempt tourist homes from charging VAT, for example.

If you are the owner or manager of one of the more than 320,000 accommodations of this type that exist in our country, then this article is for you. Read on to find out exactly what it is and how the European Commission’s proposal might affect you.

What is the European Commission’s proposal?

The European Commission wants vacation rental platforms, such as Airbnb, Booking and Vrbo, to be responsible for collecting and remitting VAT in those cases in which the owner of the accommodation does not do so, either because they do not know that they must do so or because the rules They don’t force you to do it.

The intention of the Commission is to simplify in this way the procedures that must be carried out by SMEs that operate in various EU countries, but, at the same time, to also eliminate the competitive advantage of vacation rentals, many of which do not apply VAT, compared to hotels and other tourist establishments that do.

According to the European Commission, this change would increase the collection of Member States by 6,600 million euros over the next ten years, quite juicy numbers for many of the battered public coffers of the continent.

If successful, the proposal would not begin to be applied until 2025, since it must first be consulted by the European Parliament, and the countries would need time to adapt their regulations to the changes.

How would it affect the owners?

Currently, vacation rental platforms leave VAT management in the hands of the hosts, but the new European standard would force these online companies to apply the tax to all reservations in which they act as intermediaries, which should subsequently be sent to the Tax agency.

Let us remember that all economic transactions in our country, no matter how small, are subject to VAT, although, at the same time, some are exempt. This condition implies that the operation falls within the scope of application of the tax, but, for whatever reason, it is not necessary to make its payment.

Most of the rentals of tourist homes in Spain fall within this casuistry, since the income obtained from their rental is considered capital income and their owners are not obliged to charge their guests VAT.

If the Commission proposal were approved, this situation would necessarily change. Vacation rentals could no longer be exempt from paying this tax, and the income would probably have to begin to be classified as “from economic activities.”

Consequently, the platforms would have to start charging guests an extra 21% in the rate, something that until now they do not do and benefits tourist homes. This large price increase would make them much less competitive in relation to hotels and would probably contribute to reducing their supply in the market.

The European Commission’s proposal seems to be aimed at eliminating what some consider “unfair competition” from tourist homes rented by small owners and who do not have to charge VAT compared to hotels that do.

Will the measure end up prospering? Will it be a threat or an opportunity?

The appeal of vacation rentals is not just about offering lower prices. For many travelers, a property of this type offers something that a hotel will never be able to, regardless of its price being equivalent: personalized attention, privacy, unique experiences…

We do not know what will happen with the Commission’s proposal, but, for some, the measure could even be beneficial. As we mentioned, the supply of vacation rentals would probably decrease, leaving only those of the highest quality and professional approach.

If you need any further information, please, keep checking this blog for any update – US Tax Consultants