Monday, 8 July 2013

Clampdown on undeclared holiday rentals

Illustration only
SPAIN Dinero negro is the Spanish term for 'under the counter' or 'illegal' money. There are some 120,000 undeclared summer rental properties in the country, which the central government has recently aimed big guns at under the aegis of the Ley de Medidas de Flexibilización y Fomento del Mercado del Alquiler de Viviendas, or the Measures of Flexibilisation and Development of the Property Rental Market Law, which came into effect on June 1 when it was published in the Official State Bulletin (BOE). The law has two basic objectives: to try to change the Spanish habit of property acquisition and encourage the more 'advanced' system of rental. The other objective is clearer, and probably easier to accomplish: the uncovering of illegal, or undeclared, summer rentals.>>>Blame the crisis
Until things began getting tighter, second homes were just that, second homes. But the crisis forced people (and governments) to cut back wherever possible. Instead of selling a second home at a loss, it could often be rented out, either as a summer holiday home or year round.

The National Statistics Institute came up with the figures, adding that there are some 23,000 families nationwide living directly from holiday home rentals, and another 7,500 do so indirectly. Naturally, payment of the appropriate taxes is negligible.

Internet's can of worms
The Internet is what has made these kind of rentals spread prolifically over the last few years. There are innumerable websites, mostly in English and Spanish, but more and more in German, Italian and Russian. As an example, one source reports that has grown from offering 15,000 holiday homes to 36,000 in three years. And that's in Spain alone; they list some 460,000 in 142 countries.

Gestha, the organization/union that covers tax inspectors, reported recently that there is a unit that combs the Internet for such sites, while the new law obliges power companies to submit an annual report on how much electricity each property uses. A home that is presumably empty should not be using any, but if it is rented out, it's a different matter. 
Fallout of this aspect, of course, takes us into the realm of tax residency, which is another story.

The new law on rentals does not offer any protection to the holiday home market. Among other things, it says that the old 1994 Rental Law (known as LAU and which the new law does not replace except in parts) no longer covers 'rentals for uses other than as a home' but it will be the Regional authorities that will have to use their own criteria in their own regions.

Andalucía is second in illegal holiday rentals
Topping the Spanish coastline, or 'costa', fraudulent holiday market is Catalonia, followed by Andalucía, where the undeclared revenue is estimated at an annual €180 million.

Within Andalucía there are three provinces that stand out over the rest: Costa de la Luz (provinces of Cádiz and Huelva), estimated at €73.4 million, and the Costa del Sol (Málaga) with an approximate €59.3 million in undeclared revenue.

Some 32,000 properties are calculated to be renting out illegally -or undeclared, to use their term- in Málaga, largely on the Costa del Sol. 

The La Caixa annual report estimates that 80% of overnight stays in the province of Cádiz happen in non-regulated properties, be they villas, single homes or apartments rented for short periods of a week or two, sometimes monthly.

Negative impact on tourism
A spokesperson for one well known website specialising in the Cádiz market and expanding rapidly, Comunidades del Sur, pointed out that the new law could impact tourism badly. "A normal family of five or more that wants a week's holiday can't afford a hotel in these straitened financial times," she said. "At least not in Spain." Portugal is seen as a big rival by businesses involved in the holiday home market.

The real estate market is also likely to be impacted the same way, according to the same source: "People won't invest in a second home if they can't amortise the cost."

In any case, said another source that doesn't wish to be named, so many contradicting laws in all aspects of life in Spain, including particularly the obligation of declaring assets abroad of more than €50,000, not to mention the continual bringing out of ever more restrictive laws, are creating an exodus of foreign residents, particularly the British.


1 comment:

Anonymous said...

Interesting stuff, there is nothing like killing the goose that lays the golden egg! Where do the authorities think, the alleged shady money goes? Does it not find its way back into the ailing economy and helping with the upkeep and running costs of the the properties? Which in turn employs local people to carry out most of the properties needs, and they need the work!! And where does that money go? It may just go back into the economy too? Hmmm, so I wonder who it is, thinks their loosing out? Maybe the cost of collecting revenue from the alleged activities could out way the gain? Maybe that´s OK. at least it will keep a different set of people in work??