Antonio Flores’ Blog

Regional and local press has extensively covered the enactment of the new rules governing rented accommodation. The rules, under the title Decreto 28/2016, de 2 de febrero, de las viviendas con fines turísticos y de modificación del Decreto 194/2010, de 20 de abril, de establecimientos de apartamentos turísticos, has failed to elaborate on two important aspects: what does compliance really entail and what are the fines for non-compliance?

1. In respect to compliance, the rules obliges owners to offer clients –among other requirements- the following: license of occupancy, rooms with adequate ventilation and darkening devices (shutters or similar), sufficient furniture and necessary appliances, touristic information whether in hard copy or electronic, of data for the area (bus schedules, close-by parking facilities, medical facilities in the vicinity and a plan of the town), complaint form, first aid kit, bed linen, cutlery and crockery adequate to the size and requirements of the property (and a replacement set for each). As if not enough, the law says owners will have to have a telephone number available to tenants where they can call to resolve any incidences, an instruction manual for kitchen appliances, details of the use of communal facilities and property equipment, as well as details on access of pets to the property and information on potential restriction for smokers and a few other requirements.But whilst some of the above are clear, the meaning of ambiguous words such as “adequate”, “sufficient” and “necessary” can widely differ depending on who you ask. Attending these grey areas is a pressing requirement.
2. The fine system is also not clear. The 2016 Act refers to a 2011 Rural Accommodation Act for elucidation of what fines are applicable. Some scaremongers have enjoyed spreading the belief that if you do not register, you will be fined up to 150,000 Euros. The reality is that failing to register their properties can “only” be fined between 2,000 and 18,000 Euros, the heavier monster fine of “up to 150k” being reserved for other contraventions i.e. unlawful discrimination or obstructing inspectors on duty.

Interestingly, the Act does not address the fines for failing to comply with one or more elements within the the long list on point a), for instance: missing spoons, dirty linen or insufficient first aid kit.

The experience in Catalunya and the Balearics regions, where similar rules apply, shows us that lack of registration is attracting the vast majority of fines, with little or no precedent in respect to the degree or correctness of compliance.

Antonio Flores Property Andalusia Rental Law, property rental spain, rental spain

According to the Spanish right-wing party PP, 40,000 Andalusian families relocate to Madrid every year looking for a more favourable inheritance tax (IHT) treatment. The socialist-run Revenue and Public Administration Council has disputed this and state that records show that in 2015, there are no more than 81 Andalusian families that have moved ‘abroad’ within Spain, and only 17 have done so to Madrid.

If we consider that the above data is offered by bitterly opposed political parties, the truth –first victim of the debate- must lie somewhere in between the quoted figures. But there is no denying that IHT in Andalucia, compared to other regions in Spain i.e. Madrid, is seriously onerous.

As an example, a 40-year old person registered in Andalusia (or any EU-EEA resident inheriting in this region) that receives by way of inheritance 200k Euro, will pay 28,250 Euro to the Tax Office, whereas a Madrid-based inheritor will only have to part with 285 Euros.

In addition, the method to apply the 175k Euro allowance is wholly imperfect due to defective law drafting. The consequence of this is that a person receiving estate under the €175k allowance (by the way 97% of cases in 2015) from his/her parents will be exempt from IHT but if that same person receives a further say 25k (as in the first case), he/she will be slapped with a 28k Euro tax bill!

This “tax bracket creep” is one of the great challenges faced by Maria Jesus Montero -Revenue Counsellor of the Andalusian Government- for 2016. Conservatives, led by PP party, are all for eliminating IHT altogether between parents and children, irrespective of the size of the estate, on the remaining 3% tax returns.

Dealing with that relatively small 3% gap will avoid the proliferation of illegal tax evasion schemes -using foreign companies or equity release mortgages-, uncertain avoidance loopholes -nervously waiting 4 years and 6 months for statute of limitation to kick in- or outright rejection of inheritances, such as when the taxes to be paid are higher than the equity on those properties.

Antonio Flores Inheritance Inheritance tax andalusia, Spain IHT

1. The One-Man Band Company: if you are a singer, a real estate agent with no employees or a dentist and you set up a limited company to pay less tax, you have a problem. The Directorate General of Taxes has stated that a company –consisting of a single shareholder who also is the director- that is unable to trade without the direct participation of owner/director, is in fact a shell or ‘simulated’ company.The main consequence is that the Tax Office will deem the person acting through company as self-employed, for tax purposes. To avoid this, a company must have enough human and material resources to operate irrespective of owner/director. In 2014, the Tax Office initiated 1.919 full inquiries in connection to this type of fraud. 
2. Limited vs Personal Liability: the acronym S.L. stands for “Sociedad Limited”, which suggests companies will protect the entrepreneur should things go wrong (save for fraud). Self-employed do not enjoy such protection and are personally liable with present and future assets for losses incurred in the course of the business activity.
3. Growth expectations: an entrepreneur that intends to grow cannot operate as a sole trader. As the business increases its turnover, so do the associated risks. Self-employed operators without corporate protection will risk less and, as a consequence, expand at a slower pace (which may not be a bad thing after all).
4. Dealing with monies: Sole traders will have direct access to the proceeds of the business activity whereas in a company, the director (or the shareholders) cannot just dip into the account when in need of cash. In the latter case, it is important to note that any money received by the company belongs to the company and legally, to draw cash out, the director will have to issue a salary (“nomina”) or take out a dividend, both of which are taxable.
5. Costs: Setting up as a sole trader will not attract cost whereas a company will cost anything from €600 to €1400 Euros, depending on various variables: share capital, legal assistance, choice of Notary Public etc.
6. Professional Image: In some businesses and industries, having a limited company will provide a more professional image. If you are doing business with larger companies, you may find that they prefer to deal only with limited companies rather than sole traders or partnerships.

Antonio Flores Companies autonomo spain, self employed spain, sociedad limitada, Spanish limited company spain