IVA
On July 19, 2023, the Central Economic-Administrative Court (TEAC) issued a relevant ruling for self-employed persons in Spain, allowing VAT deduction of housing-related expenses when working from home.
This change represents a step forward, since until then the Tax Agency had been very restrictive with respect to the deduction of VAT on these expenses, although the TEAC’s new criterion has been applied since the Binding Consultation V2554-23, dated 25-09-2023.
What has changed?
The change introduced by the TEAC applies the principle of proportionality, allowing VAT to be deducted according to the percentage of the property used for economic activity.
This means that it is necessary to be clear about the square meters of the dwelling that are used specifically for work, such as a room dedicated to an office. In addition, it is important that the self-employed person has registered his or her home as a place of work in the census declaration.
Requirements to Apply the Deduction
To correctly apply this deduction, the self-employed must meet several important requirements:
- Proportionality: VAT can only be deducted on the percentage of the property actually affected by the economic activity.
- Justification: In case the Treasury requests it, the partial use of the dwelling for the professional activity must be demonstrated, for example, by means of plans or photographs.
- Invoice records: It is essential to keep a detailed control of utility bills (electricity, water, gas, etc.) in order to correctly justify the deduction.
According to type of expense:
- The VAT borne on the proportional part of the property used for the activity is deductible for both utility expenses (electricity, water, gas, internet) and other expenses related to the dwelling.
- Cell phone expenses: only deductible if it can be demonstrated that it is 100% related to the professional activity.
IRPF
Although this resolution of the TEAC does not deal directly with the deductibility in Personal Income Tax of expenses related to the housing partially affected to the professional activity, it is convenient to remember the current administrative criterion in order to compare it with the VAT treatment for the same expenses:
- As regards both utility expenses (electricity, water, gas, internet) and other expenses related to the dwelling (insurance, interest, amortization), 30% of the proportional part of the dwelling used for the professional activity can be deducted.
- Cell phone expenses: only deductible if it can be demonstrated that it is 100% related to the professional activity.
Conclusion
The TEAC ruling represents a significant advance for self-employed individuals working from home, as they can now deduct part of the VAT on housing-related expenses.
Although the deduction of expenses in other taxes, such as personal income tax, was already allowed, the possibility of deducting VAT represents an important change, bringing Spanish regulations into line with European criteria.
We recommend that those affected by this measure review their situation and consider making the necessary adjustments to benefit from this new regulation.
