You let premises: the one paying the withholding is your tenant
Income from letting urban property is subject to withholding when the tenant is a business or a professional. That means the tenant does not pay you the rent in full: a slice is kept back, paid over to the tax office in your name on Modelo 115, and reported again in the corresponding annual summary at the year end.
Two practical consequences. First, that money is not lost: it is a payment on account of your own income tax and it appears in your return as tax withheld, so it either reduces your bill or comes back to you. Second, the duty to pay it over is the tenant's and not yours, but you are the one who suffers if they fail to do it: it is worth asking for copies of the returns filed, especially where the tenant is a small company or is going through difficulties.
For a reader unfamiliar with the forms: Modelo 115 is the quarterly return through which a tenant pays over the withholding on rent, and Modelo 111 is its equivalent for wages and professional fees. A small firm with premises and one employee files both in the same quarter, which is exactly why the two get muddled.
Your tenant must issue you a certificate of the amounts withheld during the year. It is the document with which you prove what was withheld if the information has not reached the authorities properly, and the one that ends the argument when the refund comes back smaller than expected. Ask for it every January.
Letting commercial premises always carries VAT
The exemption in article 20.Uno.23 of the Spanish VAT Act is designed for lettings used as a home. Letting business premises, an industrial unit, an office or a separate parking space falls outside it: VAT is charged on every receipt and the landlord files quarterly Modelo 303 returns and the annual summary, even with no other business activity of any kind.
From which follows something that surprises many private landlords: letting an industrial unit makes you a business for VAT purposes, with tax registration, an obligation to issue invoices and record books to keep. It also opens the door to deducting the VAT borne on works, insurance or professional fees relating to the property let. We handle it in self-employed in Spain and, where the tenant is outside Spain, in invoicing abroad from Spain.
The unit that has been empty for two years
In this city's industrial fabric there is a great deal of property waiting for a tenant, and its treatment raises more questions than most. While it is neither let nor used in a business, an urban property produces imputed income in its owner's personal income tax return, computed on the valor catastral: it is declared even though not a euro comes in.
As for the costs of that period — the IBI local property tax, community charges, security, insurance, repairs — deduction requires them to be linked to obtaining income. A property with a demonstrable expectation of being let, with the offer published and marketing efforts documented, is in a better position than one that is simply shut up. This is arguable ground and we present it as such: the marketing effort is documented from the first month, not when the demand arrives.
What that documentation looks like is prosaic: the instruction given to the estate agent, dated advertisements, viewings recorded, offers received and turned down. Kept month by month it persuades; reconstructed two years later it rarely does.
Who writes to us from Sabadell
| Who | Where it goes wrong |
|---|---|
| Owner of premises with a company as tenant | The 115 withholding, the annual certificate and making it agree with their return |
| Owner of a let industrial unit | VAT on every receipt, quarterly 303 returns and deducting the VAT borne on works |
| Company that rents its own office | Applying the withholding, filing the 115 and not forgetting the annual summary |
| Owner with a property empty for years | Imputed income and which costs survive an inspection |
| Workshop or small firm with premises and staff | Modelo 111 and Modelo 115 in the same quarter, which are confused more often than you would think |
Our way of working in Sabadell
We look at the lease agreements first, because their drafting decides whether the withholding is correctly applied, whether VAT is charged as it should be and whether the costs sit where they belong. After that, the ordinary run of things: quarterly returns filed on time, figures shown to you beforehand, and a fixed fee.
If you have received a proposed assessment over a badly declared letting, the deadline for representations outranks everything else and it is worth writing to us the same day: answering the tax office.
A Sabadell industrial unit let to a company, invoice by invoice
A private individual owns an industrial unit, bought for 300,000 €, let to a logistics company for 2,000 € a month. Every monthly invoice carries VAT and income tax withholding, so the money that actually reaches the account is neither of the two figures in the contract:
| Item | Monthly | Annual |
|---|---|---|
| Agreed rent | 2,000 € | 24,000 € |
| VAT charged, 21 % | +420 € | +5,040 € |
| Income tax withholding, 19 % | −380 € | −4,560 € |
| What the tenant transfers | 2,040 € | 24,480 € |
In the income tax return, the owner declares the 24,000 € and deducts IBI 2,100, insurance 900, interest 3,000, repairs 1,500 and depreciation: 3 % on the building, 180,000 €, that is 5,400 €. Net income is 11,100 €, with no reduction because it is not a home, and no imputed income, because the unit is let all year. The 4,560 € withheld is credited against the tax. For VAT, over the year the owner pays in the 5,040 € charged less the 315 € paid on the repairs: 4,725 €.
The trouble starts when the tenant stops paying. VAT falls due when the rent becomes payable, not when it is collected, so the owner keeps paying in, through the 303, the VAT on invoices never received. It can be recovered by amending the taxable base for a bad debt, but only once the statutory period has passed and the debtor has been pursued through the courts or a notary, and the tax office has been told in time. Anyone who lets those deadlines slip while waiting for the tenant to pay loses that VAT. For income tax, doubtful debts follow their own path.
What the Sabadell unit's owner and tenant each file
| When | The owner | The tenant company |
|---|---|---|
| 1 to 20 April, July and October | 303 for the quarter | 115 with the quarter's withholding |
| By 30 January | 303 for the fourth quarter | 115 for the fourth quarter |
| January | 390, the annual VAT summary | 180, the annual summary, and a withholding certificate for the owner |
| April to June | Income tax return, with the withholding as a payment on account | — |
Modelo 115 is the return in which a business tenant pays over the withholding on rent. How each one is completed is in Modelos 111 and 115, and the form for us to handle the letting is at tell us about your business.
What almost nobody in Sabadell asks until they are at the notary: the sale of a used industrial unit is, as a general rule, exempt from VAT and subject to transfer tax. But if you deducted the VAT on the purchase or on building work in the last ten years, that exempt sale requires you to pay back the part of the period still remaining. The usual way out is to waive the exemption when the buyer is a business entitled to deduct: the sale then carries VAT, the buyer declares it under the reverse charge and there is nothing to adjust. The waiver has formal requirements and is made at the time of the transaction. We explain it in the reverse charge.