Renting unfurnished housing: don't charge VAT — the article 20 exemption and the three ways to lose it without noticing

If you rent apartments or houses to be lived in, unfurnished, the law takes you out of VAT entirely: you don't pass it on, you don't report it for that activity, your tenant doesn't pay it (art. 20, section II of the LIVA). It is an exemption with a social purpose — making housing cheaper — that benefits the landlord directly... until one of three common mistakes destroys it retroactively, with the 16% on every rent you collected turned into a tax debt against you. Here is the full exemption, with its exact boundaries.

What the exemption covers

The temporary use or enjoyment of real estate used or intended exclusively as housing. The word doing the work is intended use: what matters is that the property is used as a home — the contract must say so, and reality must confirm it. It covers the house, the apartment, and the accessories that naturally come with it (the parking space and the storage unit rented as part of the home follow its intended use). It does not require the tenant to be an ordinary individual: a company that rents an apartment so that its executive lives in it is still residential use — though here it pays to shield the contract precisely, because it is the zone where the authority sniffs around.

The three ways to lose it

1. Furnishing. A property provided furnished loses the exemption — the LIVA regulation says so plainly, and the logic is that furnished rental edges toward lodging. The practical boundary: the fitted kitchen and the built-in closets are part of the property; the "included" bedroom, living room and dining room are furnishings that tax the whole rent at 16%. If your model is the furnished executive apartment, you are not in this exemption — your pricing and your contract must reflect that from day one.

2. Mixed use without separating it. The shop with housing above it, the house-turned-office, the partly commercial property: the exemption applies only to the residential portion — the commercial part triggers 16%. A single contract with a single rent = a lost argument over proportions; correct practice separates the considerations (ideally separate contracts) with a defensible allocation by square meters or appraisal.

3. Turning into lodging without admitting it. Short stays with cleaning, a platform and services — the Airbnb model — are not residential rental: they are lodging/business activity, with VAT at 16%, state lodging tax and platform withholdings. Renting "by the night" under a contract that says residential housing does not change the nature: the accumulation of services changes it for you.

The correct operation, in brief

A contract that fixes the residential intended use expressly (and forbids a change of use without consent); a CFDI (tax invoice) for exempt rental — the exemption doesn't excuse you from invoicing, it excuses you from the tax; and consistency between contract, invoice and reality — because the exemption is lost by the facts, not by the paperwork. A closing note that surprises many: exempt does not mean invisible — the rents are reported in full on your ISR (where your other big decision lives), and the VAT on your property expenses is not creditable: it is the structural price of being exempt, and in housing it is almost always a great deal to pay it.