Short-Term Holiday Lets vs Long-Term Rentals

The first decision any foreign buyer must make is what kind of rental income they intend to generate. The distinction matters enormously from a legal and tax perspective.

Short-term tourist rentals (VUT / alquiler turístico)

Short-term rentals — those let through platforms such as Airbnb or Booking.com, or directly to tourists for periods typically under 31 days — are classified as tourist accommodation (vivienda de uso turístico) and regulated by the autonomous communities, not the central government. This means rules vary significantly between regions.

In most regions — including Catalonia, Madrid, Valencia, Andalusia and the Canary Islands — you must obtain a tourist licence (licencia turística) before renting the property to any guest. Operating without one risks fines of up to €30,000 in some regions, deregistration and reputational damage on listing platforms.

In Barcelona, new tourist licences have been effectively frozen since 2014 and the city announced in 2023 that it will not renew existing licences when they expire in 2028 — making the tourist rental market in the city increasingly restricted and licence availability very limited.

Long-term residential rentals (alquiler de vivienda habitual)

Long-term rentals — contracts of 12 months or more intended as the tenant’s primary residence — are governed by Spain’s Ley de Arrendamientos Urbanos (LAU). This is a well-established framework with strong tenant protections, including mandatory contract extensions, limited rent increases and strict eviction procedures.

The 2023 Housing Law (Ley de Vivienda) introduced additional landlord obligations in designated «stressed rental zones», including caps on rent increases linked to the new CPI index (not the general IPC) and penalties for large landlords. Foreign buyers must understand whether the property they are purchasing falls within a stressed zone before committing.

The Tourist Licence — What You Must Know Before You Buy

One of the most common and costly mistakes foreign buyers make is purchasing a property for holiday rental purposes without first verifying that a tourist licence can be obtained for it. The licence does not automatically follow the property — it must be applied for, and approval is not guaranteed.

In many Spanish municipalities — particularly in the Balearic Islands, Canary Islands, and major cities — tourist licence availability is strictly limited. Some areas require that the property be a standalone house rather than an apartment. Others require minimum floor areas, accessibility standards or specific building classifications.

Community of owners (comunidad de propietarios) rules also matter. Under a 2019 reform, communities can vote by a three-fifths majority to ban tourist rentals in the building outright. If such a ban is already in place — or if neighbours are likely to introduce one — the value proposition of the property changes entirely.

We carry out full tourist licence viability checks as part of our property purchase due diligence — before our clients are committed to the transaction.

Tax Obligations for Foreign Rental Landlords in Spain

Rental income generated from Spanish property is taxable in Spain regardless of where the owner lives. Foreign (non-resident) landlords are subject to the Impuesto sobre la Renta de No Residentes (IRNR), filed quarterly via Modelo 210.

EU/EEA residents

Landlords resident in an EU or EEA country are taxed at 19% on net rental income — meaning they can deduct allowable expenses including mortgage interest, community fees, insurance, maintenance costs and agency fees. This is a relatively favourable regime.

Non-EU residents (including UK, US, and other nationals)

Landlords resident outside the EU/EEA — including UK nationals post-Brexit and American buyers — are taxed at 24% on gross rental income. No expense deductions are permitted under this regime. This significantly affects yield calculations and should be factored into any investment appraisal before purchase.

For US buyers, rental income from Spain must also be declared to the IRS under FATCA obligations. Double taxation treaty provisions between Spain and the US may reduce the overall tax burden, but specialist advice is required to navigate both regimes simultaneously.

In addition to income tax, non-resident property owners who leave a property unrented for any part of the year are subject to imputación de rentas inmobiliarias — a deemed income charge based on the property’s cadastral value, even if no actual rental income is generated. This is a common surprise for foreign buyers.

Buying Through a Company vs Personal Ownership

Some foreign buyers consider holding Spanish rental property through a company structure — either a Spanish Sociedad Limitada (SL) or a foreign corporate entity — to optimise their tax position. This can be effective in the right circumstances, but it introduces its own complexity.

A Spanish SL holding rental property is subject to Corporation Tax (Impuesto sobre Sociedades) at 25% on net profits, and can deduct operating expenses including depreciation. However, extracting profits from the SL triggers additional personal tax obligations, and the structure carries accounting, compliance and administration costs.

Foreign companies holding Spanish property — whether UK Ltd companies, US LLCs or other structures — are subject to the Impuesto sobre Bienes Inmuebles de Entidades No Residentes (IBER) and additional reporting obligations. Spain also has specific anti-avoidance rules targeting property held through companies in low-tax or opaque jurisdictions.

The right holding structure depends on the number of properties, the buyer’s tax residency, their home country’s treatment of Spanish income, and their long-term exit strategy. We advise on structure before purchase — not after — because restructuring after acquisition is expensive and sometimes impossible without triggering additional taxes.

Tenant Rights and Landlord Obligations Under Spanish Law

Spain has some of the strongest tenant protection laws in Europe. Foreign landlords unfamiliar with the LAU framework are frequently caught out by obligations that do not exist in their home countries.

Mandatory contract duration: Long-term residential tenancy contracts must provide a minimum duration of five years (seven years if the landlord is a legal entity). The tenant can extend annually up to this minimum period regardless of what the contract says.

Rent increase limits: Annual rent increases are capped by the new CPI index introduced in 2024. In stressed rental zones, landlords cannot increase rent beyond what is permitted under the zonal reference index.

Deposit requirements: Landlords are legally required to hold the tenant’s deposit (fianza) in an official deposit scheme administered by the relevant autonomous community. Failure to do so invalidates the landlord’s ability to make deductions at the end of the tenancy.

Energy certificate: All properties offered for rent must hold a valid certificado de eficiencia energética. Properties rated F or G cannot be legally let in some regions, and Spain is progressively tightening minimum energy standards under EU directives.

Eviction procedure: Evicting a non-paying tenant in Spain is a slow legal process that typically takes 6–18 months through the courts. Landlords cannot self-help — changing locks or removing belongings is a criminal offence. Properly drafted tenancy agreements and thorough tenant screening are the most effective protection available.

Key Numbers for Foreign Rental Investors

What Legal Due Diligence Must Cover for a Rental Property Purchase

Purchasing property intended for rental requires a higher standard of due diligence than a simple residential purchase. In addition to the standard checks on title, encumbrances and planning status, a lawyer acting for a rental investor must investigate:

Tourist licence status and availability — whether a licence is held, transferable, or can be applied for; whether the community has voted to prohibit tourist lets; and what regional restrictions apply to the location.

Existing tenancy agreements — if the property is already tenanted, the buyer inherits the tenancy in full. Review of the contract, deposit records and the tenant’s payment history is essential before exchange.

Community of owners rules — the building’s estatutos and recent minutes of community meetings (actas) can reveal restrictions on rental use, forthcoming major works or disputes that will affect the investment.

Energy performance certificate — the current EPC rating, and whether planned EU minimum efficiency standards will require capital expenditure to maintain lettability.

Stressed rental zone classification — whether the municipality is designated as a stressed zone under the 2023 Housing Law, which restricts rent increases and may impose additional landlord obligations.