GIPE Newsletter 4 June 2024

REAL ESTATE PROMOTION:

SALES TO FOREIGNERS AND THE ORIGIN OF FUNDS

In a new real estate development, you have received numerous offers from foreigners who pay in cash, which raises concerns about money laundering. It is crucial to verify the origin of these funds.

Promoter Obligations:

• Control: As a promoter, you must monitor compliance with money laundering regulations in all sales. With foreign buyers, control must be greater due to the greater risk of illicit funds.
• Action: Although the law does not specify how to verify the origin of funds, it imposes severe fines and possible disqualification for non-compliance. Therefore, you must establish your own control methods.
  

Way to pay:

• Bank Financing: The part financed by a bank does not require its control, allowing it to focus on the portion paid with the buyer’s own funds. It is preferable that the money be in a Spanish bank, which carries out laundering controls according to Spanish regulations. Banks can also help verify the origin of unfunded money.
  

Customer information:

• Form: Ask the buyer to complete a form with personal, professional and economic information, including a declaration of the origin of funds and the use of the property. Require supporting documentation.
• Justification: The buyer must demonstrate with documents that the funds are legal, such as employment contracts, payrolls, tax returns, recent property sales or inheritances.
  

Black Lists:

• Some countries with lax money laundering laws, such as North Korea and Iran, are on international lists. Avoid operations with nationals of these countries or strengthen control if you decide to accept them.

TAXES

TOURIST RENTAL: HOW IS IT TAXED?

If you decide to temporarily rent a home on the coast to tourists, you should consider how to pay taxes on said rental.

With VAT or with ITP:

• No additional services: When renting the home (furnished or not) without additional services, VAT should not be charged, since the rental of homes is exempt from this tax.
• With additional services: If you provide hotel services (such as periodic cleaning, laundry, restaurant), you must charge VAT. These services include periodic cleaning, laundry of bed and bath linens, and other hospitality services. Cleaning at the beginning and end of the rental, nor the availability of kitchen equipment and maintenance, are not considered hospitality services.
  

VAT requirements:

• If the rental includes VAT, it must be registered with the Treasury under section 685 (“Non-hotel tourist accommodation”) and charge a VAT of 10%. The VAT incurred by the activity may be deducted.
  

ITP requirements:

• If the rental is exempt from VAT, it will be taxed by ITP. This tax is paid when formalizing the rental and is the responsibility of the tenant, generally being a low amount.
  

Taxation in personal income tax:

• Real estate capital returns: If hotel services are not provided, the returns are declared as real estate capital returns.
• Income from economic activity: If hotel services are provided, the income is declared as coming from an economic activity.
• No reduction: Reductions of 50-90% cannot be applied to the returns obtained, as these reductions apply only to leases for permanent use.
  

With Employee:

• If it is rented without additional services but there is a full-time employee to manage the activity, you must declare income from economic activities. This need must be justified by the number of rented properties and the workload.