B Law & Tax
07 December 2023

Tax advisor: Madrid High Court Evaluates Requirements for residential lease Regime and the Importance of Law 27/2014

In its ruling dated June 29, 2023, the Madrid Superior Court of Justice analyzes the suitability of implementing the special residential lease regime, focusing on assessing whether the requirement of conducting an economic activity is met.


Relevance of Law 27/2014 in Evaluating the Economic Activity of residential lease

Firstly, the Court emphasizes that, in the present case, regulations related to the previous legislation are not applicable. This is because during the 2015 fiscal year, Law 27/2014 on Corporate Income Tax was in force, which already contains a legal definition of what constitutes an economic activity for tax purposes. In other words, the Legislator itself recognizes the incorporation of the concept of economic activity in Corporate Income Tax with the enactment of Law 27/2014, becoming the relevant regulation for the case.

Therefore, the Court maintains that the plaintiff fails to demonstrate compliance with the requirement established in the aforementioned Article 5.1, which requires having a person employed under a full-time employment contract to be considered as engaging in an economic activity of real estate leasing.


Professional Services Contract: Non-Labor and Part-Time

Regarding the arguments presented in the lawsuit concerning the private contract dated January 1, 2015, related to the provision of legal, tax, labor, and accounting advisory services with the majority partner holding 60% of the company, it is necessary to clarify that the contract, as clearly evidenced in the document submitted to the administrative file, does not constitute an employment contract. Additionally, there is no information supporting that such service was provided on a full-time basis as required by regulations. The agreed remuneration is limited to an annual fee of 2,120 euros plus VAT, an amount far from being considered equivalent to a full-time job and significantly below the Minimum Wage.


Arguments about Model 190 and Economic Activity Requirements

The arguments concerning Model 190 do not substantiate the existence of an employment or service contract comparable to a full-time employment contract, as the tax declaration for the fiscal year 2015 does not include amounts under “Personnel Expenses (N, A, P).” In this context, the application of the requirements of Article 5.1 of Law 27/2014 must be strict, and the petitioner has not demonstrated compliance. Furthermore, the quantity of 15 properties does not automatically determine the fulfillment of legal requirements to be considered an economic activity, as the law does not specify a specific number of properties.


In summary : residential lease

The judgment emphasizes that the application of the residential lease regime is contingent on evaluating the requirement of economic activity. Law 27/2014 is pivotal, defining economic activity for tax purposes. The Court supports the Administration’s assertion that the plaintiff does not meet the requirement of Article 5.1, which mandates having someone employed on a full-time basis. The 2015 professional services contract is not considered employment, and arguments regarding Model 190 do not support the existence of a full-time employment contract. The quantity of 15 properties does not guarantee compliance with the legal requirements to be considered an economic activity, as the law does not specify a specific number of properties.



B Law & Tax International Tax & Legal Advisors.


“In B LAW&TAX we specialize in international tax advisory services for both companies and individuals. If you would like to obtain further information, we would be delighted to assist you at 917817194 or at  [email protected]