Everything You Need to Know About Coliving in Spain, Contract Models, and Taxation

Coliving, a rising phenomenon, combines renting private rooms with sharing common spaces within the same property. Typically, a specialized company manages these spaces to ensure harmonious and organized living among residents. This option is particularly appealing to young professionals, students, and digital nomads seeking a community environment with services included in the rental price.

In Spain, coliving has experienced exponential growth over the past four years. However, this rental model is not specifically regulated under the Urban Lease Law (LAU). Unlike traditional rental agreements, coliving contracts operate under a different framework, raising legal questions for both landlords and tenants regarding rights and responsibilities.

Contract Models and Tax Considerations Every Landlord Should Know

When a landlord decides to dedicate their property to coliving, they must choose between two key contract models: lease-sublease and lease on behalf. Each approach has its own characteristics and risks, which not only define the relationships between the parties involved but also influence the applicable tax obligations.

Lease-Sublease Model

In the lease-sublease model, the landlord signs a contract with a coliving company, which then subleases the rooms to residents. The coliving company assumes direct responsibility for the tenants and manages services like cleaning and Wi-Fi, sometimes even organizing community activities. In this structure:

• Stable income for the landlord: The company pays a fixed rent to the landlord, ensuring consistent income regardless of occupancy rates.
• Occupancy risk assumed by the company: The coliving company bears the risk of vacancies, providing peace of mind for the landlord.

Lease on Behalf Model

In this format, the coliving company acts as a manager on behalf of the landlord, handling all services and daily management. However, the rental contracts are signed directly between the landlord and the residents. The specific characteristics of this model include:

• Higher potential profit for the landlord: The landlord receives direct income from each rental, although the coliving company charges a fee for its management services.
• Occupancy risk assumed by the landlord: In this case, the landlord bears the risk of vacancies, as their income depends on the number of occupied rooms.

The primary difference between the two models lies in the contractual relationship between the landlord and the coliving company, which ultimately determines who bears the greater share of business risk.

Tax Differences and IVA Treatment

While the contractual differences between the lease-sublease and lease on behalf models may seem minor, their fiscal impact is significant, particularly regarding the treatment of Impuesto sobre el Valor Añadido (IVA).

According to Spain's Law 37/1992 on IVA, services are subject to the tax if they are "provided within the territorial scope of the tax by entrepreneurs or professionals for consideration." Entrepreneurs or professionals are defined as those who "perform a service involving the exploitation of a tangible or intangible asset with the aim of obtaining continuous income over time." This definition includes the rental of property as a taxable service.

However, Article 20.Uno.23º of the IVA Law establishes that the rental of properties intended exclusively for residential use is exempt from IVA, except when the landlord provides additional services characteristic of the hospitality industry, such as restaurant services, cleaning, or laundry.

Lease-Sublease Model (Lease-Sublease)

In this model, when the coliving company acts on its own behalf:

• The rental agreement between the property owner and the coliving company is subject to IVA because the company does not exclusively use the property for residential purposes but sublets it. In this case, the general rate of 21% applies.
• The coliving company provides a rental service to the tenants. This rental is exempt from IVA if the properties are exclusively for residential use and do not include services typical of the hospitality industry. However, if the company offers additional services such as frequent room cleaning, linen changes, resident activities, or breakfasts, the rental will be subject to IVA at a reduced rate of 10%.

Lease on Behalf Model (Management on Behalf of the Owner)

In this model, where the coliving company acts on behalf of the property owner:

• The coliving company provides a mediation service to the property owner, which is subject to IVA at the general rate of 21%.
• The property owner, who directly signs the contracts with the tenants, provides a rental service that, as in the previous model, is exempt from IVA if the property is used exclusively for residential purposes and does not include hospitality services. If these additional services are provided, the rental will be subject to IVA at a reduced rate of 10%.

Issuance of Invoices and VAT Deduction

The obligation to issue invoices depends on the parties involved and the type of service provided. For VAT-exempt services offered to a private customer, issuing an invoice may not be required. However, when the service includes activities typical of the hospitality industry and VAT is applied, proper invoicing becomes mandatory.

It is important to note that VAT exemption in certain cases limits the ability to deduct input VAT on expenses. This aspect can influence the decision to offer additional services characteristic of the hospitality industry, as charging VAT allows for the deduction of input tax associated with related expenses.

Importance of Choosing the Right Model in Coliving

Choosing the appropriate contractual model is essential, as it not only impacts the relationships between the parties involved but also taxation. Depending on the model, different risks, obligations, and fiscal responsibilities may arise. Therefore, conducting a thorough analysis of the chosen business model is crucial to maximizing tax benefits and avoiding potential tax complications.