Renting of furnished accommodation in apartments, rooms, cottages or in a facility which is real estate according to the Value Added Tax Act (1994:200), ML, can be assessed either as a letting of real estate that is exempt from tax liability or as taxable room rental in hotel operations or similar activities.
Decisive for the assessment of whether the rental of furnished housing should be considered taxable room rental in hotel business is the purpose and content of the activity.
The Swedish Tax Agency considers that two prerequisites must be met in order for it to be a question of taxable room rental in a hotel business or similar business:
- the rental shall relate to the provision of accommodation for a shorter period of time (temporary accommodation) and
- the rental must take place within the framework of a hotel operation or similar activity (active provision).
The Tax Agency considers that a prerequisite for lettings to be considered to be temporary accommodation is that the lettings in the ongoing business relate to the provision of accommodation to the respective tenant/occupant which only in isolated cases exceeds three months.
The Swedish Tax Agency considers that the following circumstances suggest that the rental of a furnished accommodation takes place in a hotel business (active use of the property):
- that the rental is marketed in competition with the hotel industry, usually at a daily or weekly price or
- that the rental takes place at a facility specially adapted for the purpose or
- that the lessor to a certain extent provides services that are typical in a hotel operation.
However, VAT does not need to be charged if the taxable person is covered by the rules on tax exemption for taxable persons with a small turnover. This applies if the turnover in the economic activity during the taxation year is not estimated to exceed SEK 80,000, excluding VAT, and the turnover during the two previous taxation years has not exceeded SEK 80,000, excluding VAT.
The right to a deduction for input tax exists if a building or a separate part of a building is only used for taxable room rental. If a building or a separate part of the building that is partly used for taxable room rental is also used privately or for housing rental that is exempt from tax liability, however, the deduction ban applies for permanent residence. This is because the deduction ban is a standard rule. Even if the deduction ban applies to all input tax on expenses relating to the building itself, there is a right to deduct costs that are only justified by the rental, such as e.g. bed linen, cleaning, brokerage fee, etc.
The statement replaces the statement “Tax liability for room rental in hotel business, value added tax, 18 December 2015, dnr 131 675099-15/111. The new position means a changed assessment regarding the provision of temporary housing for asylum seekers (ABT) to the Swedish Migration Agency. The position also means that the circumstances surrounding the provision of housing and the residents’ length of stay are given greater importance when assessing the purpose and content of the lessor’s activities. The definition of what is meant by a shorter time has been changed from an average of four months to an average of three months in consideration of later Swedish practice. Previous criteria for when the business has permanently changed direction have been scrapped. The position also involves a change in terms of renting out one’s own home. Previous criteria that the tax liability when renting out a private residence requires that the turnover amounts to SEK 50,000 and the total rental period amounts to 16 weeks per tax year have been abolished. However, VAT does not need to be charged if the turnover in the business does not exceed SEK 80,000, excluding VAT, per tax year according to the rules on tax exemption for companies with a small turnover. A basic condition for the tax liability is, as before, that the letting is done in an economic activity.
2 Question
The Supreme Administrative Court (HFD) has announced two judgments relating to taxable room rental in hotels or similar activities, HFD 2019 ref. 46 and HFD 2020 ref. 51. The last-mentioned judgment partly implies a different view than what appears in the Tax Agency’s position “Tax liability for room rental in hotel business, value added tax, December 18, 2015, dnr 131 675099-15/111.
In this position statement, the Swedish Tax Agency gives its view on questions about how taxable room rental in hotel operations or similar activities should be assessed in different situations due to the judgments from the HFD.
The position statement does not deal with the provision of campsites and the equivalent in camping operations.
3 Applicable law, etc
3.1 Taxable room rental in hotels or similar activities
Value added tax must be paid to the state on such turnover within the country of goods or services that is taxable and is made by a taxable person in this capacity, to the extent that the taxable person is not exempt from tax on turnover according to ch. 9 d. ML (ch. 1 § 1 first paragraph 1 ML).
A taxable person is according to the provisions in ch. 9 d. ML exempt from tax on turnover of goods and services that the taxable person makes within the country during a tax year, if the turnover according to § 3
1. is not expected to exceed SEK 80,000 during the tax year, and
2. has not exceeded SEK 80,000 for either of the two immediately preceding taxation years (9 d ch. 1 § and § 3 first paragraph ML).
Rental of real estate is exempted as a general rule from tax liability (Chapter 3 § 2 first paragraph ML). However, the exemption from tax liability does not cover room rental in hotel business or similar activities (chapter 3, section 3, first paragraph, 4 ML).
According to the corresponding provision in the VAT Directive, the exemption from tax liability shall not apply to the provision of accommodation, as defined in the legislation of the Member States, in the hotel industry or industries with a similar function, including the provision of accommodation in holiday villages or in areas prepared for use as campsites (Article 135. 2 ai of the VAT directive).
That it is up to the Member States to introduce criteria to distinguish between taxable letting and such letting that is exempt from tax liability, and that they have a discretion in doing so, is also clear from the practice of the European Court of Justice. However, the discretion of the Member States to define the taxable area is limited by the purpose of the directive provision (C-346/95, Blasi, paragraphs 21-22 and C-270/09, MacDonald Resorts, paragraph 50).
In Swedish legislation, no further criteria have been introduced for how the line should be drawn between, on the one hand, taxable room letting in hotel operations and similar activities and, on the other hand, the granting of leaseholds exempt from tax liability. This question must therefore be decided in practice, taking into account the framework for interpretation set by the underlying directive provision (HFD 2020 ref 51, point 16).
HFD has considered that the letting of furnished apartments to companies and organizations was exempt from tax liability. According to the conditions, the rental period amounted to four and five months, respectively, with the possibility of extension. Each apartment was booked for a specific tenant and was fully equipped for self-catering. The rent also included bed linen and towels, final cleaning and some on-call service. According to HFD, it appeared clear that the intention was to rent out apartments for longer periods of time than is normally the case in the hotel industry. The court further found that no significant added value was created through the additional services that the company provided. According to the court, it was therefore not a question of lettings that potentially competed with the provision of accommodation in the hotel industry, but rather of passive letting of immovable property. The rentals were therefore exempt from tax liability (HFD 2019 ref. 46).
HFD has further considered that the provision of temporary accommodation for asylum seekers (ABT) to the Swedish Migration Agency constitutes taxable room rental in an activity similar to hotel management. In HFD’s opinion, the actual contract period according to the agreement with the Swedish Migration Agency is of less interest when what is to be assessed is whether an activity of the type in question should be considered taxable room rental or not. That assessment should be made based on the purpose and content of the activity, and in that case the time the residents stay at the facility is of greater relevance than how long the rental to the Migration Agency should last. Considering the resident’s length of stay rather than the rental period according to the agreement with the Swedish Migration Agency cannot be considered to be in conflict with Article 135.
ABT accommodation is used to prepare temporary accommodation for asylum seekers and the objective in the current case is that no asylum seeker should stay in ABT accommodation for more than three months and that the residents’ actual stay at the facility in question does not exceed that time and only exceptionally amounts to six months. The purpose of the company’s activities is then considered to be to provide asylum seekers with accommodation for a shorter period of time. In addition to this, the company must be responsible for the staffing of the facility and provide comprehensive ancillary services. In HFD’s opinion, the company’s operations appear more like an active use of the property than a passive rental of it (HFD 2020 ref. 51, paragraphs 23-24).
3.2 Right of deduction for input tax
Anyone who runs an activity that entails tax liability may deduct the input tax that relates to acquisitions or imports into the activity (Chapter 8 § 3 first paragraph ML, cf. Article 168 of the VAT Directive). However, deductions may not be made for such input tax that relates to permanent residence (ch. 8, § 9 ML).
The deduction ban for permanent residence refers to all input tax that can be attributed to the residence, i.e. both costs for inventory and repairs as well as costs for operation and maintenance (SOU 1994:88 p. 242).
Jurisprudence shows that the deduction ban for permanent residence must be understood as a standard rule. The deduction ban must be applied regardless of whether the main rule in ch. 8. Section 3, first paragraph, ML entails the right to deduction. Deductions for input tax relating to a building or part of a building should in some cases be allowed even if the building is, by its nature, a residence. This should be the case when the building or part of the building has been adapted in some way for the business and the part where the business is conducted is clearly separated from the residential part (see e.g. RÅ 2003 ref. 100 I and II). When assessing what constitutes permanent residence, according to legal practice, both the design and the actual use of a building or part of a building must be given importance (RÅ 2010 ref. 43). If an apartment, a building or part of a building is only used for taxable room rental, it is not considered to be set up for permanent residence. The deduction ban for permanent residence is then not applicable (RÅ 2002 ref. 67). That a deduction ban may also refer to acquisitions that are used in a taxable activity is compatible with the VAT directive (C-305/97, Royscot et al., paragraphs 20 and 23, RÅ 2010 ref. 43 and HFD 2021 ref. 4).
4 Assessment
4.1 Introduction
A basic condition for VAT to be levied when renting out furnished accommodation is that the letting is taxable and is carried out in an economic activity.
Leasing of property and other granting of rights to property that is not only temporary shall normally be considered an economic activity.
However, VAT does not need to be charged if the taxable person is covered by the rules on tax exemption for taxable persons with a small turnover. This applies if the turnover in the economic activity during the taxation year is not estimated to exceed SEK 80,000, excluding VAT, and the turnover during the two previous taxation years has not exceeded SEK 80,000, excluding VAT.
4.2 Taxable room rental
The question of what constitutes taxable room rental in hotel operations or similar activities according to ML must be decided by practice, taking into account the framework for interpretation set by the underlying directive provision. It appears from practice that the assessment must be made based on the purpose and content of the activity. The tax liability assumes that the purpose of the business or a specific part of the business is to provide accommodation for a shorter period of time (temporary accommodation).
Rental of furnished accommodation in apartments, rooms, cottages or in a facility which is real estate according to ML can be assessed for value added tax law either as letting of real estate that is exempt from tax liability or as taxable room rental in hotel operations or similar activities.
Exempted letting of real estate is usually a relatively passive activity that is related to the passage of time and that does not create any significant added value. Taxable room letting in the hotel industry means a more active use of the property.
The Swedish Tax Agency considers that two prerequisites must be met for it to be a question of taxable room rental.
- the rental shall relate to the provision of accommodation for a shorter period of time (temporary accommodation) and
- the rental must take place within the framework of a hotel operation or similar activity (active provision).
4.2.1 Accommodation for a shorter period of time
Rental in the hotel industry is characterized by the provision of accommodation for a shorter period of time (temporary accommodation). The rental period is the starting point for the assessment. In some cases, however, it is more relevant when assessing the purpose and content of the activity to instead look at the length of each resident’s stay, i.e. for how long a resident is provided accommodation in total. It can e.g. apply when the lessor has signed an agreement with the Swedish Migration Agency to provide accommodation for asylum seekers (ABT accommodation).
According to the Swedish Tax Agency’s interpretation of recent practice, it should be a matter of relatively short rental or stay periods for the rental of furnished accommodation to be considered to compete with the hotel industry. Against this background, the Swedish Tax Agency considers that a shorter period of time should be understood as providing accommodation to the respective residents for a maximum of three months.
As it basically concerns the letting of property, the assessment of the rental or stay times must be made separately for each building or facility or a specific part of the building or facility. If there are different types of letting during the year, it may be relevant to make the assessment for a certain part of the year. It would e.g. could be the provision of temporary accommodation during the summer and customary housing rental during the rest of the year (see further example 4.4.4).
Provision of accommodation for a longer period of time can be accepted in individual cases without the purpose and content of the activity changing.
If the provision of accommodation to the respective residents in more than one case exceeds three months, the Swedish Tax Agency considers that the content and purpose of the activity cannot be considered to be the provision of temporary accommodation. This means that the rental is exempt from tax liability, even if the rental sometimes takes place for a shorter period of time.
4.2.2 Hotel operations or other similar activities
In order for the rental to be taxable, it is also required that the rental is carried out in a business focused on providing accommodation. Only the passive letting of furnished homes is not taxable, even if it takes place for a shorter period of time. Room letting in hotel operations is characterized by the fact that the lessor is active in letting the furnished home. The assessment must be made separately for each building or facility or specific part of the building or facility (see section 4.2.1).
The Swedish Tax Agency considers that the following circumstances suggest that the rental of a furnished accommodation takes place in a hotel operation (active use of the property).
- that the rental is marketed in competition with the hotel industry, usually at a daily or weekly price or
- that the rental takes place at a facility specially adapted for the purpose or
- that the lessor to a certain extent provides services that are typical in a hotel operation.
Marketing in competition with the hotel industry does not count as marketing to related parties or a smaller circle of people.
Examples of facilities specially adapted for the purpose are hotel buildings and hostels.
Examples of services that are typical in a hotel business are a reception that takes care of check-in and check-out and other guest services, cleaning the furnished accommodation, changing bed linen, renting bed linen and opportunities to eat breakfast. Whether the additional services are to be seen as separate services in relation to the room rental or not, e.g. when determining the tax rate, does not affect the assessment of whether the use of the property is active.
4.3 Right of deduction for input tax
Anyone who runs a business that entails tax liability may deduct the input tax that relates to acquisitions or imports into the business. Deductions may not, however, be made for such input tax that relates to permanent residence.
When assessing what constitutes permanent residence, according to legal practice, both the design and the actual use must be given importance. Permanent residence means a building or part of a building that is set up for permanent residence or is used as a permanent residence. Since in the current cases it is a matter of renting furnished homes in various forms, the deduction ban for permanent residence is normally applicable if the buildings, cottages, apartments, furnished rooms are not used for taxable room rental. The deduction ban also applies to costs for repairs and maintenance, operation and the like.
If a building or separate part of a building is used exclusively for taxable room rental in hotel business, the deduction ban for permanent residence does not apply.
The deduction ban is a standard rule. If a building or separate part of the building that is partly used for taxable room rental is also used privately or for residential rental that is exempt from tax liability, the deduction ban applies to permanent residence. The same applies to the taxable rental of a furnished room or part of the home that is not separated from other parts of the home, even if the room or part of the home is only used for taxable room rental. The deduction ban also applies to all input tax attributable to a building, including fixtures, if the building e.g. only used within the framework of taxable rental in hotel operations during the summer and then used for private use during the rest of the year (see further example 4.4.4).
Even if the deduction ban applies to expenses relating to the building itself, there is a right to deduct expenses that are only justified by the rental, such as e.g. bed linen, cleaning, brokerage fee, etc.
4.4 Examples
4.4.1 Provision of temporary accommodation to the Swedish Migration Agency for asylum seekers
A company (supplier) has entered into an agreement to provide so-called ABT accommodation for asylum seekers to the Swedish Migration Agency at a special facility. The contract period between the supplier and the Swedish Migration Agency is six months and thereafter continuously for a maximum of three years. The supplier staffs and is responsible for the operation of the operations at the facility. The supplier’s services include i.a. board and lodging, cleaning of public areas, receiving and housing asylum seekers, calling in security guards if necessary, informing about fire protection, correcting faults and deficiencies in the facility, etc. The residents clean their own rooms and the Swedish Migration Agency provides bed linen and towels. In the facility there are accommodation rooms with beds and common areas for the residents. There is also a reception, a kitchen where staff cooks and a dining room where breakfast, lunch and dinner are served. The compensation for both board and lodging is calculated per resident and per day. The supplier is entitled to guarantee compensation for half of the accommodation places, provided that an asylum seeker stays at the facility. The Swedish Migration Agency’s goal is that no asylum seeker should stay in the ABT accommodation for more than three months. The length of stay may exceptionally be longer.
The Tax Agency’s assessment.
The supplier has entered into an agreement to provide so-called ABT accommodation for asylum seekers to the Swedish Migration Agency in a specially adapted facility. The goal is that no asylum seeker should stay in the ABT accommodation for more than three months, even if the length of stay may exceptionally be longer. The supplier is responsible for the staffing and operation of the facility. The supplier will provide comprehensive ancillary services, even if the residents themselves take care of the daily cleaning of their living rooms and the Swedish Migration Agency provides bed linen and towels. The business involves a more active use of the property than a passive rental of it. The purpose of the supplier’s activities at the facility according to the agreement with the Swedish Migration Agency may be considered to be to provide accommodation for asylum seekers for a shorter period of time. The rental of ABT accommodation to the Migration Agency must then be assessed as taxable room rental in operations similar to hotel operations. With such use of the facility, the deduction ban for permanent residence is not applicable.
4.4.2 Leasing of property to the Swedish Migration Agency, which arranges accommodation for asylum seekers
A property owner rents a property to the Swedish Migration Agency. The property contains living rooms in the corridor and common areas such as the kitchen and family room. Residents can lock their rooms and receive visitors. The Swedish Migration Agency staffs the property and organizes accommodation for asylum seekers in the corridor rooms (so-called ABK accommodation). The property owner signs a lease agreement with the Swedish Migration Agency. The lease is valid indefinitely with two months’ notice. The length of stay for an asylum seeker is six months on average. There are also shorter stays.
The Tax Agency’s assessment
The property owner rents the property to the Swedish Migration Agency, which uses the property to organize accommodation for asylum seekers. The property owner does not provide any services that typically occur in the hotel industry, but the Swedish Migration Agency runs the business at the property. Even if asylum seekers stay in the property for a shorter time in some cases, the rental to the Swedish Migration Agency does not compete with the provision of accommodation in the hotel industry. The rental may be assessed as passive rental of immovable property. Rental to the Swedish Migration Agency is therefore exempt from tax liability. The rental refers to permanent residence. The deduction ban is therefore applicable.
4.4.3 Rental of own residence
A rents out his home in Stockholm in his own name to various tourists via marketing on a website. The rental is marketed at a daily or weekly price. The respective tourist stays in the apartment between two and seven days. A takes care of cleaning and bed linen when the tenant changes. Otherwise, self-catering applies to the guests. The apartment is available for rent for a large part of the year, but rentals usually take place during the summer months of June, July and August. When the furnished home is not rented out, A lives in the home himself. The compensation for the rental amounts to approximately SEK 75,000 per year.
The Tax Agency’s assessment
A markets the rental at a daily or weekly price on a website that mediates the rental in A’s name. The rental on each occasion usually refers to a shorter period of time. A also provides a certain service to the residents. In the opinion of the Swedish Tax Agency, A’s rental is an economic activity and can be seen as taxable room rental in activities similar to hotel operations. This assessment also applies if the guests would clean the apartment themselves when moving out or have their own bed linen. Since the turnover in the business does not exceed SEK 80,000, excluding value added tax, per tax year, the rules on tax exemption apply. A is therefore not obliged to pay output tax for the rental. There is then no right to deduct input tax either.
If the turnover in the economic activity exceeds SEK 80,000, excluding value added tax, per tax year or if A chooses not to apply the rules on tax exemption, A is obliged to pay value added tax for the rental. A then has the right to deduct input VAT on costs that are only justified by the taxable rental, e.g. any brokerage commission, bed linen and towels as well as cleaning agents, all on the condition that the general conditions for the right to deduct are met. However, since A also uses the home privately, the deduction ban for permanent residence is applicable. This means that A has no right to deduct input tax on costs relating to the home itself, e.g. costs for repairs and maintenance, operation and the like.
4.4.4 Rental to students and Bed & Breakfast
B rents out three furnished rooms to students on a semester basis. The rooms are in a separate building located on B’s property in Linköping. No service is included in the rental to students. During June, July and August, B rents out the rooms to tourists. The rental is marketed at daily and weekly rates as Bed & Breakfast on a website for hotel bookings. The respective tourist stays in the rooms between two and seven days. The price includes breakfast, change of bed linen and towels and cleaning of the rooms. The building is not used for private accommodation by B.
The Tax Agency’s assessment
The term rental to students must be assessed as such passive rental of immovable property that is exempt from tax liability. The rental to tourists during June, July and August must, on the other hand, be considered taxable room rental because the rental to the respective tenant is for a shorter period of time, is marketed at daily or weekly prices and includes certain services that typically occur in the hotel industry.
The furnished rooms are not only used for taxable room rental, but also for rental of housing that is exempt from tax liability. The deduction ban for permanent residence then becomes applicable for input tax on expenses relating to the building and the rental to students, e.g. costs for repairs and maintenance and operation. B, however, has the right to deduct input tax on costs that are only justified by the taxable rental, e.g. any brokerage commission, bed linen and towels as well as cleaning agents, provided that the general conditions for the right to deduct are met.
4.4.5 Hostels
A company (C AB) runs a hostel for tourists. The business is conducted in a building set up for the purpose. There are i.a. a reception that takes care of check-in and check-out. C AB markets the rental at a daily and weekly price on a website for booking accommodation for hotels and hostels. The respective tenant lives 2-14 days at the facility. Longer stays also occur in individual cases. C AB is responsible for cleaning public areas such as corridors, shower rooms and kitchens. Self-catering applies to the residents, which i.a. means that the residents themselves are responsible for food, bed linen and towels and clean the accommodation rooms.
The Tax Agency’s assessment
The purpose of C AB’s operations may be considered to be providing accommodation for a shorter period of time in a building specially adapted for the purpose. C AB markets the rental at a daily and weekly price on a website for booking accommodation for hotels and hostels. The rental is usually for a shorter period of time, although rental for a longer period may occur in individual cases. The rental must be assessed as taxable room rental in hotel business. This also applies if there is no reception and check-in and check-out are handled via the company’s website. With such use of the building, the deduction ban for permanent residence is not applicable.
4.5 This statement replaces previous statements
The statement replaces the statement “Tax liability for room rental in hotel business, value added tax, 18 December 2015, dnr 131 675099-15/111. The new position means a changed assessment regarding the provision of temporary housing for asylum seekers (ABT) to the Swedish Migration Agency. The position also means that the circumstances surrounding the provision of housing and the residents’ length of stay are given greater importance when assessing the purpose and content of the lessor’s activities. The definition of what is meant by a shorter time has been changed from an average of four months to an average of three months in consideration of later Swedish practice. Previous criteria for when the business has permanently changed direction have been scrapped. The position also involves a change in terms of renting out one’s own home. Previous criteria that the tax liability when renting out a private residence requires that the turnover amounts to SEK 50,000 and the total rental period amounts to 16 weeks per tax year have been abolished. However, VAT does not need to be charged if the turnover in the economic activity does not exceed SEK 80,000, excluding VAT, per taxation year according to the rules on tax exemption for companies with a small turnover. A basic condition for the tax liability is, as before, that the letting is done in an economic activity.
Source: skatteverket.se
