TAX REBATE ON ACQUISITION OF DWELLINGS FOR REAL ESTATE COMPANIES/ ENTREPRENEURS & RENTAL ACTIVITY PROHIBITED
Catalan Tax Authorities have recently published two tax rulings in regards to the tax rebate applicable for the acquisition of dwellings by Real Estate companies.
References of the tax rulings: 169/18 and 172/18 both of July 9th 2018 – Publication date: October 2nd 2018
The legislation applicable in Catalonia sets out a tax rebate that sets out a reduction of 70% on the tax rate of the Transfer Tax, meaning, in most cases, the tax bill will be 3% of the acquisition value instead of 10%.
The basic requirements for this tax rebate are the following:
- Acquirer must be a company or an entrepreneur duly registered with the Tax Authorities;
- The main activity of the company/entrepreneur must be the sale and acquisition of real estate properties;
- The Public Deed of acquisition must contain a special mention that confirms the intention of the acquirer is to transfer the dwelling to an individual to be his/her habitual home;
- The property acquired must be transferred within a five year term from the date of the acquisition; and
- The real estate property must be registered in the accounts of the company/entrepreneur under the scope of current assets (NOT fixed assets).
One of the issues with this tax rebate has always been the possibility to rent out the acquired property during the legal term the property should be transferred (i.e. 5 years). In relation to this issue, there have been a number of largely unclear tax rulings that imply that renting such a property is not possible, however they do not expressly state nor establish with any certainty that it is prohibited.
In an attempt to address the uncertainty, the Catalan Tax Authorities have now expressly stated that rental activity is not possible with such properties. However, they only maintain this position on the basis that, from an accounting standpoint, properties subject to rental activity should not be registered under the scope of CURRENT ASSETS, but under the scope of FIXED ASSETS. We continue to be of the opinion that the explanation provided by the Tax Authorities is poor, and given that they clearly want to prohibit rental activity for this tax rebate, they should consider changing the text of the law accordingly. That said, at least now the position of the Tax Authorities has been clarified. As mentioned before, in previous tax rulings the Tax Authorities simply ruled that rental activity seemed not to be possible.
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