Spanish real estate taxation update

Spain remains a leading destination for real estate investment so keeping up to date with tax developments is essential for investors, developers and asset managers. In this context, a recent legislative proposal could significantly alter the current tax treatment of Spanish real estate, while a series of binding tax rulings and court decisions have clarified key aspects of property taxation. This article provides a summary of the most important recent developments and their potential implications for stakeholders in the Spanish real estate market.

Legislative proposal to increase real estate taxation

On 22 May 2025, the current Prime Minister’s party in Spain (the Socialist Party) introduced a legislative proposal in Congress aimed at addressing escalating housing prices in Spain. This initiative contains a package of tax measures that may have a significant impact on property owners and real estate investors in Spain, including:

• Progressive taxation of vacant properties: a proposal for progressive increase in the imputed income tax on unoccupied residential properties to encourage use. The current rates of 1.1% – 2% would rise to a maximum of 3%, depending on the cumulative cadastral value of the owner's vacant properties.

• Increased VAT on tourist rentals: a proposal to raise the VAT rate on tourist accommodation rentals to 21%, aligning it with standard commercial activities.

• A 100% tax charge on most residential property purchases by non-EU residents: a proposal for a complementary charge equivalent to 100% of the property value aimed at disincentivise the acquisition of residential properties by non-EU residents, although this would not apply to VATable transfers (e.g. newly built residential assets or B2B transactions subject to VAT).

• Increased taxation of Spanish REITs (SOCIMIs): a proposal to raise the corporate tax rate from 15% to 25% for the share of profits made by SOCIMIs which is not distributed to investors, unless a significant portion of their portfolio is allocated to affordable housing rentals.

Although the legislative proposal remains under review, stakeholders should consider evaluating their positions and preparing for potential changes. Proactive planning will be essential to mitigate risk and seize emerging opportunities.

Recent rulings and case law developments

Clarification of indirect taxation of hotel transfers

The key issue in determining whether the transfer of a hotel property is subject to VAT or Transfer Tax lies in defining an 'independent economic unit' (in essence, a transfer of a going concern or TOGC). Under Spanish VAT law, transfers of assets forming part of a TOGC are not subject to VAT. However if a transaction, including real estate assets, is part of a TOGC (and so not subject to VAT), it falls within the scope of Spanish Transfer Tax, significantly increasing acquisition costs. The ambiguity surrounding the definition of an 'independent economic unit', introduced by Law 4/2008 and influenced by the CJEU case Zita Modes (Case C-497/01), has led to uncertainty, exacerbated by differing interpretations between the Spanish central (responsible for VAT) and regional tax authorities (competent to collect Transfer Tax).

The General Directorate of Taxes in Spain (DGT) has consistently emphasised the importance of human resources in determining an 'independent economic unit', asserting that a hotel transfer must include not just the property but also the organisational structure and resources necessary for independent operation. This stance has been most recently confirmed in a binding tax ruling of February 2025 and is also supported by decisions of the Central Economic-Administrative Court (TEAC), the highest administrative tax court in Spain. Notwithstanding this ruling, some regional tax authorities, relying on a more restrictive 2016 Supreme Court ruling, continue to argue that merely transferring a hotel property with some licences may constitute an 'independent economic unit', thus subjecting the transaction to Transfer Tax instead of VAT.

This divergence in criteria creates significant uncertainty for hotel sector investors, leading to inconsistent tax liabilities depending on the property's location. The original intent of the VAT Directive was to avoid the financial burden of VAT on business transfers, yet the approach of some regions in Spain leads to a contrary effect. In the absence of unambiguous legal or judicial guidance, it is important to analyse each hotel property sale transaction thoroughly, considering judicial decisions, tax rulings and regional tax authority criteria based on the property's location.

Recent clarification on leasing as a business activity

Spanish tax regulations require that a property company employ at least one full-time employee to qualify as carrying on an economic activity. This may have an impact from various perspectives, including, for instance, restrictions on the participation exemption (when a Spanish holding company sells the shares of a Spanish property company engaged in leasing activity), restrictions on the use of tax losses in change of control scenarios, or restrictions on the application of the special regime for companies devoted to residential leasing (the so called “EDAV” regime). Historically, outsourcing to third-party management companies was considered insufficient to meet the requirement. However, in recent years, the STA has acknowledged that engaging specialised external management firms may fulfil this requirement under certain circumstances, depending on the scale and complexity of the business.

In the most recent tax ruling (of October 2024, though only publicly released in early 2025), a company holding nine residential apartments and generating EUR 70,000 in annual turnover from its rental activities was deemed not to be carrying on a business activity by the STA, despite having outsourced the management. Considering the scale of the business and the nature of the assets, the STA concluded that the level of complexity did not justify the need for outsourced management services.

Based on the STA's evolving position, Spanish companies with more complex or substantial property portfolios may still, for now, reasonably rely on outsourcing management activities. However, future shifts in the STA's criteria cannot be ruled out.

Demerger of a company owning two hotels

In a recent ruling of March 2025, the DGT addressed whether a company operating two hotels could apply the special tax regime for corporate restructurings. A demerger transaction was proposed, pursuant to which the entity would divide its assets into two parts, allocating to each shareholder (two families) the shares of the newly incorporated companies that took ownership of the hotels. The DGT concluded that each hotel may qualify as an independent business unit if they operate with separate purposes, management, and adequate material and human resources. Therefore, the companies could qualify for the special regime, which allows for a tax deferral.

VAT and sale and lease-back transactions

On 26 November 2024, the TEAC ruled that sale and lease-back agreements should be considered financial transactions for VAT purposes. The Spanish Supreme Court is expected to clarify soon whether a transaction involving the sale and simultaneous lease-back of real estate, with an option to repurchase, qualifies as a VAT-able supply of goods or as a single exempt financial operation.

VAT reverse charge and land under development

In a February 2025 binding tax ruling, the DGT has clarified that the VAT reverse charge does not apply to the transfer of land under development (subject to VAT) when urban development charges are not yet registered at the Property Registry at the time of the land transfer, even if registration is imminent. The special reverse charge rule applies when land subject to urban development charges is transferred to a buyer who assumes responsibility for the development and it derives from Article 199(1)(e) of the Principal VAT Directive. As the purchaser of the land can only be regarded as acquiring the property with the obligation to assume the development charges if such charges have been previously registered (given that registration creates the charge), such formality is regarded as a key requirement for the availability of the reverse charge.

This ruling provides important clarity for transactions involving partially developed land. The reverse charge is seen as a key factor to achieve greater neutrality from a VAT perspective, given that it helps to get around the financial impact of paying the input VAT to the seller and recovering it afterwards through deduction in the next monthly or quarterly VAT return.

VAT reverse charge in transactions with mortgage retentions

In two February 2025 binding tax rulings , the DGT confirmed that the VAT reverse charge mechanism applies when a property is sold with existing mortgages, and part of the purchase price is withheld to cancel those debts. However, if the mortgages are cancelled before or simultaneously with the deed signing, the reverse charge does not apply.

Valuing purchase price for VAT purposes

In a March 2025binding ruling , it was confirmed that when the buyer agrees to pay the current year’s Municipal Property Tax (IBI), this amount forms part of the VAT taxable base under Article 78 of the Spanish VAT Law. If the tax amount is not yet determined, a reasonable estimate must be used, with future adjustments permitted.

No additional Stamp Duty on mortgage assumption

A recent binding tax ruling reaffirmed that when a property buyer assumes an existing mortgage (i.e. effectively replacing the original borrower) this does not give rise to an additional taxable event under the Stamp Duty, beyond the Transfer Tax. While the ruling avoids direct application of the 2020 Supreme Court doctrine (which, in some cases, found such transactions taxable), further guidance from the Supreme Court is still expected.

2% Transfer Tax for residential conversions in Madrid

In an October 2024 judgment of, the High Court of Justice of the Madrid region confirmed that house-flipping companies can apply the reduced 2% Transfer Tax rate (the standard rate in Madrid is currently 6%), even when acquiring office-classified properties, provided the asset can be used as a residence on acquisition and is indeed used as such within three years. The lack of any explicit resale intent in the deed does not preclude application of the reduced rate.

Municipal Property Tax (IBI) treatment for surface rights

In a January 2025 binding tax ruling, the DGT clarified that, for properties subject to separate “surface building rights”, the IBI liability should be split as follows: the landowner pays based on land cadastral value and the surface rights holder pays based on the construction value. This interpretation is consistent with existing Supreme Court case law.

Comment

The current landscape of real estate taxation in Spain is marked by growing tax complexity and increasing divergence between national and regional tax interpretations. Legislative proposals such as the potential VAT increase on tourist accommodation, increased tax on SOCIMIs, vacant housing and a legally questionable 100% surcharge on certain acquisitions could significantly reshape the market. At the same time, recent rulings have provided valuable clarifications on practical matters, including the VAT treatment of certain transactions and the application of regional taxes. In this evolving environment, it is crucial that real estate owners and investors monitor legal developments closely, carefully assess transactional structures and seek expert tax advice to ensure compliance while maximising investment efficiency.