Taxation of leasing of housing for employee use
Nowadays it is quite common for companies not only to pay monetary remuneration for the work of their employees, but also to pay for these services by offering their employees payments in kind, some of the most common being: the assignment of the use of a house or a vehicle, the contracting of medical insurance, the delivery of childcare checks or shares in the company itself. In this article, we explain the taxation of the leasing of housing for employee use.
This income is included in the employee’s payroll and is valued in accordance with the calculation rules set forth in Article 43 of the LIRPF, which vary depending on different criteria such as, for example, whether it is a delivery or a transfer of use of the asset; or whether the item enjoyed forms part of the property of the paying company or not.
In the following article, we will focus on the case of companies that lease real estate for use as housing for their employees and the main doubts that arise regarding the taxation of these operations for VAT and personal income tax purposes, especially for the purpose of checking the correct issuance of invoices that may be received for this concept.
We will also highlight the most important factors to be taken into account when formalising this type of transactions in accordance with current legislation and administrative doctrine, as they can significantly influence the qualification of the transactions and the tax obligations of each of the parties involved.
Is the letting of a dwelling to a company for the use of its employees subject to VAT?
Starting from the premise that all the circumstances are met for this transaction to be subject to tax, i.e. that goods or services are supplied or rendered within the spatial scope of the tax by businessmen or professionals for consideration, on a regular or occasional basis, in the course of their business or professional activity, even if they are made for the benefit of the partners, associates, members or participants of the entities that carry them out, it should be noted that section one.23 of Article 20 of the VAT Act provides that the following are exempt from VAT Article 20.23 of the VAT Act provides that the leasing of buildings or parts thereof which are used exclusively for dwellings, including garages and annexes attached to the dwelling, and furniture leased together with the same, shall be exempt from VAT.
Does the VAT exemption apply to buildings for subletting?
However, the provision goes on to add a series of cases to which the previous exemption will not be extended, including, for these purposes, leases of buildings or parts thereof intended for subletting.
That said, it is nothing new in this field to find that things are not black and white and that, therefore, in order to clear up any doubts in this respect, it is necessary to resort to the interpretation of the rule in question by administrative and jurisprudential doctrine.
Government’s view on the application of the VAT exemption in the case of subletting of the dwelling
This case is a clear example of the importance of knowing the latest pronouncements, as the Administration’s criteria have varied over the years.
Initially, the Administration maintained that the rental of housing in these cases could not enjoy VAT exemption because the lessee was a legal entity, basing its criterion on the fact that the application of the exemption required the exclusive use of the dwelling by the lessee, otherwise it would be a case of subletting, excluded from the exemption as we have seen above and, consequently, which should be taxed at 21%, with the contracting company bearing these quotas.
However, since the resolution of 15 December 2016 of the TEAC, the Administration has modified its position in such a way that it now understands that there is no subleasing and that, therefore, the VAT exemption may be applied in these cases, provided that there is no intention on the part of the lessee to exploit the leased property and that it can be accredited in the stipulations of the contract that the transfer of the property is intended directly for effective and proper use as a dwelling by a specific natural person, who must necessarily appear as the user in the lease contract itself. Furthermore, the contract must state that the dwelling may not be used by anyone other than the person indicated, nor may it be sublet or assigned to third parties.
Must withholding tax be levied and paid on this property income derived from the lease?
The second question frequently raised is whether this real estate income derived from the lease is subject to a 19% withholding tax, which will be paid directly to the Administration by the lessee company on account of the lessor’s personal income tax or corporate income tax.
In development of Article 99 LIRPF, which regulates the obligation to make payments on account, Article 76 of the Personal Income Tax Regulations provides that, in general, legal persons and other entities, including homeowners’ associations and entities under the income attribution system, among others, are obliged to withhold or make payments on account when income subject to this obligation is paid.
Article 75(2) of the same Regulation establishes that this obligation applies to income from the letting or subletting of urban immovable property, and clarifies that for these purposes references to letting shall also include subletting.
Up to this point, it would seem that the income would be subject to withholding. However, the third paragraph of the same article adds that the above income will be exempt from this obligation in certain cases, including, most notably, those involving the rental of housing by companies for the use of their employees.
What happens if there is no employment relationship between the company and the person to whom the use of the dwelling is assigned?
The existence of an employment relationship, from the perspective of Article 1 of the Workers’ Statute, between the paying company and the natural person who enjoys the use of the dwelling is of particular relevance in terms of the obligation to withhold tax on real estate income.
A clear example of this scenario could be that of a company and its Director between whom there is no employment relationship in the terms envisaged above.
In these cases, the Directorate General for Taxation points out that the exception foreseen for the rental of housing by companies for the enjoyment of their employees cannot be applicable, so that the lessee company must withhold tax on the income paid in accordance with Articles 75 and 76 of the RIRPF.
Conclusions
In the case of leasing a dwelling for the use of employees, it is particularly important to take the following factors into account:
- In order to be able to apply the exemption provided for in art. 20.one.23 of the LIVA, it is essential to stipulate in the lease contract the express designation of the natural person to whom the exclusive use of the property intended for housing is transferred and the prohibition of transfer or subletting to third parties.
- The exemption from the obligation to withhold tax on real estate income provided for in art. 75.3.g) 1º of the RIRPF requires that there is an employment relationship between the company and the employee. Otherwise, the company is obliged to make and pay the corresponding withholding tax.
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