Aparthotel lease and VAT exemption: analysis of Binding Ruling no. 29474

1. Background

The VAT qualification of contracts involving the making available of real estate for hotel operations has been subject to ongoing debate, particularly regarding the distinction between the lease of immovable property and the transfer of a business as a going concern.

The recent binding ruling issued by the Portuguese Tax Authorities reinforces the need for a case-by-case analysis focused on the economic substance of the transaction rather than its formal legal classification.

In the case under analysis, the transaction concerned the lease of a fully furnished and equipped aparthotel on a “turnkey” basis, in exchange for a fixed rent. The key issue was whether such transaction should be treated as VAT-exempt under Article 9(29) of the Portuguese VAT Code or, alternatively, as a taxable transfer of a business.

2. General rule: VAT exemption for real estate leases

Under Article 9(29) of the Portuguese VAT Code, the lease of immovable property is, as a general rule, exempt from VAT.

This exemption results from the transposition of Article 135 of the VAT Directive and must be interpreted restrictively, in line with the settled case law of the Court of Justice of the European Union.

For VAT purposes, a lease is essentially characterised by the passive making available of immovable property to a tenant, for a specified period and in return for consideration, without generating significant added value and without the provision of relevant ancillary services.

3. Exclusion from the exemption: transfer of a business as a going concern

Article 9(29)(c) of the Portuguese VAT Code excludes from the exemption situations where the lease of immovable property effectively entails the transfer, for consideration, of the operation of a commercial or industrial business.

In such cases, the transaction is not a mere lease but rather the transfer of an organised economic unit capable of operating independently, which is therefore subject to VAT.

The distinction between these two scenarios depends on factors such as:

• • The existence of an organised set of assets (human and material);
  • The transfer of licences, permits or administrative authorisations;
  • The provision of management, maintenance or operational services;
  • The level of involvement of the lessor in the activity carried out.

4. Analysis by the Portuguese Tax Authorities

In the case at hand, the Portuguese Tax Authorities concluded that the transaction did not constitute a transfer of a business as a going concern, but rather a lease of immovable property duly equipped for hotel activity.

Although the property was delivered fully furnished and equipped (including FF&E), the Tax Authorities placed particular emphasis on the following elements:

• • The licences and administrative authorisations required to operate the aparthotel were not transferred, and it was the tenant’s responsibility to obtain them;
  • No management, maintenance or supervision services were provided by the landlord;
  • The hotel activity was entirely carried out by the tenant;
  • The transaction amounted to a passive making available of the property.

On this basis, the Tax Authorities concluded that the transaction did not involve the transfer of an autonomous economic unit and therefore did not fall within the exclusion set out in Article 9(29)(c) of the Portuguese VAT Code.

5. Tax implications

As a result of this qualification, the transaction benefits from the VAT exemption applicable to real estate leases, and no VAT is due on the rental income.

However, this qualification has relevant implications regarding input VAT recovery, as the taxpayer will be carrying out exempt transactions without the right to deduct VAT, and should therefore:

• • Change its VAT status to a mixed taxable person;
  • Adjust the method of input VAT deduction;
  • Assess the need for any VAT adjustments or regularisations.

Additionally, the option to waive the exemption may be considered under Article 12 of the Portuguese VAT Code, provided that the legal requirements are met.

6. Practical considerations

The position now reiterated by the Portuguese Tax Authorities highlights that the qualification of such transactions depends on a detailed analysis of the contractual terms and the underlying economic reality.

In particular:

• • The mere availability of a fully equipped property is not sufficient to exclude the exemption;
  • The absence of transferred licences and ancillary services is decisive;
  • The level of involvement of the landlord in the business is a key determining factor;
  • Minor contractual changes may significantly impact the VAT treatment.

7. Final remarks

The distinction between a real estate lease and the transfer of a business as a going concern remains particularly relevant in the real estate and hospitality sectors, with direct implications for VAT treatment and input VAT recovery.

The recent clarification provided by the Portuguese Tax Authorities reinforces the importance of careful contractual structuring aligned with the intended tax treatment and the operational reality of the business.

In this context, a prior and technically robust analysis is essential in order to mitigate tax risks and optimise the VAT position.

The Tax Law Department of Belzuz Abogados, S.L.P. has extensive experience in advising real estate and hospitality operators, providing support in investment structuring, contractual analysis and the design of tax-efficient solutions in accordance with domestic legislation and EU law.