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Tenants Obliged to Pay Tax on Rentals

Posted in: Latest News, News Articles,
Author: Myra Cecilia Azzopardi
Tags: , ,

Update. In the new amendments of the rental law of 2019, this tax has been abolished.

While ignorance of the law does not exempt compliance, legal principle established in the art. 6.1 of the Civil Code, it is true that many tenants have been caught by surprise last few days in the Madrid community by notifications claiming payment of ITP (Impuesto Transmisiones Patrimoniales)

The constitution of a property leasing contract is subject to this tax, since the law that regulates it was approved in 1993. The tenant must pay although it is true that this tax has not been claimed so far in regions such as Madrid or Castilla La Mancha and many more.

The Community of Madrid amongst others, is notifying tenants who signed their lease in the last four years (maximum period of time in which the administration can claim the default), asking for compliance of this tax liability. The notifications are to be what are known as friendly. The recognition of the widespread ignorance of the law has been taken into account by the administration, which in principle does not require an additional sanction for non-payment, assuming good faith by the taxpayer.

The Transfer Tax (ITP) is tax levied on the transfer of goods to which are not subject to IVA (VAT). The transfer of a property for use by tenants supposes that this is an acquisition subjected to transfer taxes.

Tenants in Madrid were surprised when last year the Ministry of Finance enabled the tax authority to claim the taxes from the tenants. The latest claim for payment of ITP from tenants is part they say, of the plan to combat fraud in the Community of Madrid.

For rentals in the housing sector, the tax base is the total amount payable to the owner for the entire duration of the contract; i.e., the sum of all the monthly payments. If there is no rental period in the contract, the tax will be calculated for a six year period, subject to additional payments to be made ​​if the agreement remains in force later. In the leases of urban property subject to forced extension, will be calculated for at least one term of three years. This tax only needs to be paid yearly if the contract is revised on a yearly basis. Commercial properties are subject to IVA so this tax does not need to be paid.

Amounts payable under the Transfer Tax in Madrid

Table based on the monthly rental costs and in Euros. Up to:

30,05 0,09

30,06 a 60,10 0,18

60,11 a 120,20 0,39

120,21 a 240,40 0,78

240,41 a 480, 81 1,68

480,82 a 961,62 3,37

961,63 a 1,923.24 7,21

1,923.25 a 3,846.48 14,42

3,846.49 a 7,692.95 30,77

7,692.96 and upwards 0,024040 per 6,01 euros or fraction.

E.g of five-years at 800 euros per month:
The taxable income from the sum of the quota period: 800 x 12 x 5 = 48.000 euros.
As the amount is greater than 7,692.49 euros, estimate: 48,000 euros x 0.024040 / 6.01 = 192 euros.

The payment should be made within 30 days of the signing of the contract. The document to use would be the corresponding modelo 600 for each region.

Why has the payment not been claimed to date?

The widespread ignorance of the existence of the taxable event in the signing of a lease, together with the limited information which so far has been provided for the administration about these contracts and who were tenants has hampered and possible tax inspections.

Most contract are privately drawn up so that the signing of the lease is done in most cases between private parties,therefore has not involved professionals who can provide information due to their tax obligations. Furthermore, the data of those obliged to pay, ie the tenant, were not accessible for administration.

Besides Madrid, the other regions who have launched a campaign to send out notifications are: Andalucía, Cataluña, Galicia and Asturias.


Please note: The information provided is based upon our understanding of current legislation. It is not legal advice but is provided freely to enable you to be properly informed. We recommend that if you are considering taking action, you should seek professional advice.

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