Renting out a holiday home? These are the general tax and VAT rules

Sep 25, 2020 | Homeowner Tips, Money Matters

If you own a second house or holiday home and you rent it out or are planning to rent it out, this can be an interesting option for tax purposes. It is then good to know that you – in general – have to pay tax on the (purchase) value of your holiday home. When your holiday home is located abroad, you should take into account the locally applicable tax rules. Because these are often adjusted, more and more checks are carried out and countries exchange information, we recommend that you always consult a local tax advisor before you rent out your holiday home.

Tax rental income

In many countries local taxes are calculated on the rental income you generate with the rental of your holiday home. This can be compulsory nationwide, regionally or even locally, depending on the location of the holiday home. It also matters where you live. In one country, for example the Netherlands, you do not have to pay tax on the rental income.

Holiday home rental and VAT

However, if you carry out additional activities, such as offering city tours or passenger transport, these will be taxed with VAT. In other countries, different tax rules apply to such activities. You do not pay VAT on the renting out of holiday homes yourself. Our advice: Ask your tax advisor about the exact regulations. Bear in mind that a professional approach to your tax return makes things easier and may also provide additional tax benefits.

Stay up to date with tax regulations

The amount of tax you have to pay each year varies per country and/or region and the amount of tax changes frequently. It is therefore difficult to give a correct and accurate prognosis of what you are obliged to pass on to the tax. So far, in France and Spain you have to pay between 25% and 30% tax and in other countries this can be more than 50%. Please note that the exact percentage can be increased or decreased annually. It is therefore important that you are very well informed about the current situation.

How many days of tax-free renting

How many days a year you make the property available for holiday rental is also something you should pay attention to. Each country has its own maximum number of days, for which you are not yet required to make a declaration. After that you need to declare you are renting out. Even if you advertise your holiday home on a holiday home rental platform, this is seen as commercial rental and in many countries you will have to pay a certain percentage. In most countries a distinction is made between ‘occasional / temporary rentals’ and ‘commercial / long-term rentals’.
If you exceed the maximum number of days, you will usually have to pay (more) income tax on it. The advantage of being considered as an entrepreneur is that you may have tax-free income up to a certain amount and may deduct certain things in your tax return.

Rental license holiday home

In many countries nowadays a rental license, also known as a rental permit, is required if you want to rent out your second home. In certain regions in Spain for example this is particularly strict and you risk a high fine if you do not have a license. For governments, requiring a rental license is an opportunity to regulate the rental of holiday homes and somewhat guarantee the quality of vacation rentals for guests.

Tax deductions

In many countries you have the right to deduct specific amounts from the annual declaration. You must then be able to prove that your second home serves the purpose of generating income. In this way, you are considered an entrepreneur and different rules apply. The easiest way to ‘prove’ that you intend to make a profit is by not using the holiday home at all and making it fully available for rent. You can, for example, have this laid down in the purchase contract in which you have the so-called own use excluded for the coming years. You must then also indicate what the expected annual income will be for the future period. The tax authority or government wants to be able to see that you demonstrably expect more income than expenditure.
If you plan to use your holiday home privately, you can also be seen as an entrepreneur, as long as you make a profit. You may then deduct certain expenses and VAT in the annual return. This can make all the difference in order to qualify as an entrepreneur and enjoy certain tax benefits.

Local or tourist tax

As a homeowner you should also bear in mind that the regional or local government obliges you to levy local taxes, also called tourist taxes, on your guests. You have to inform the guest in advance how much that is exactly. Tourist tax is a fixed amount that applies to everyone in that region.
Incidentally, you can indicate at Belvilla that the tourist tax will be taken away from you and paid in advance. This saves hassle with payments on the spot and avoids surprises for the guest. Polls have shown that guests prefer to pay everything in advance in order to maintain the holiday feeling. Paying a deposit and additional costs on location is a disappointment.

Tax return

Regardless of which country you live in and where your second home is located, you are obliged to state the rental income in your tax return. Additional income such as tourist tax, deposit and final cleaning must also be included. Belvilla increasingly receives the – obligatory – request to report the rental income per holiday home to the government of another country. In France and Italy this is part of the national regulations and we expect that this will also be done by other countries over time.

With this article Belvilla / OYO Homes tries to inform the reader somewhat about the general laws and regulations concerning taxes and the letting of a holiday home or second home. Since the rules and laws are constantly changing, adapted and may vary per region, Belvilla / OYO Homes cannot be held liable for incompleteness or inaccuracy in what is written in this article.

Let your holiday home with us

Belvilla brings its 40+ years of property management experience & over 2000 travel partners to optimize your rental income for you without any hassle.

Let your holiday home with us

Belvilla brings its 40+ years of property management experience & over 2000 travel partners to optimize your rental income for you without any hassle.

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