VAT treatment of the grace period on a lease of premises for business purposes


Binding tax ruling V0164-16 issued by the Spanish General Tax Directorate on January 19, 2016.

The Spanish General Tax Directorate analyses a service consistent in the lease of premises for business purposes in which the Contracting Parties have agreed to a grace period consisting in three months of rent, as compensation to the works that the tenant should perform to adapt the business local to its economic activity.

The lessor requests clarification as to whether he should declare the VAT relating to the grace period.

In principle, the Spanish VAT Law, understands the lease of commercial establishment as a service subject and not exempt of VAT. In addition, article 78 of this law, states that the VAT taxable base consists of the total of the consideration of the transactions that are subject to the same, from the recipient or from third parties, including the concept of consideration any effective credit in favour of who performs the taxable operation.

In this sense, the Spanish General Tax Directorate understands that shall be part of the VAT tax base not only the amount of the rentals, but also the amount of the work of adequacy in the premises by the tenant, and which according to the contract of lease shall be for the benefit of the lessor.

What is clear that the landlord, during the grace period, despite not receiving consistent cash incomes has received improvement in his property that are part of the VAT tax base which must be declared.

For the determination of the VAT tax base in cases where the consideration does not consist in money, shall be considered as VAT tax base the amount expressed in money which had been agreed between the parties.

If the amount of the consideration is not known at the time of the accrual of the tax, the taxable person must secure it provisionally, without prejudice to its rectification when this amount was known.

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CV 0164 16

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