When investing in Spain, is it really advantageous to buy the property through a Spanish limited company?

We are asked this particular question by a great number of our clients and while there is no substitute for qualified legal advice pertinent to individual circumstances, the following overview should elaborate on possible advantages and whether this should be considered as a cost effective option for a non Spanish resident intending to purchase a property in Spain.

Firstly, we must make it clear that every purchaser, whether resident or a non resident pays the same taxes when they acquire a property in Spain. The purchaser who buys a resale property must pay seven per cent purchase tax on the declared price and also notary and land registry fees, whilst the purchaser of a new building, must pay seven per cent VAT (IVA) on the declared price, one per cent stamp duty and also notary and land registry fees.

But what happens with the seller? The seller must pay the ‘plusvalia’, a tax collected by the town hall where the sold property is situated, together with their capital gains tax.

At this point, we must ask the following question – is it really advantageous to sell a property as a resident or as a non resident?

The differences are substantial; the vendor, resident in Spain, who sells before one year from the date of purchase, will pay a scale from 15 per cent to 45 per cent depending on their income that year. However, if they sell after one year from the date of purchase, they will pay only 15 per cent on capital gains.

On the other hand, the vendor, non resident in Spain, will always be officially liable for 35 per cent capital gains tax, whether the sale occurs before or after one year from the date of purchase. The authorities have not found it particularly easy to collect this capital gains tax from non residents therefore introduced a legal obligation whereby 5% of the sale price is retained at source on account of (in reality instead of) the 35% liability.

As you can see it is more advantageous to sell as a resident, but which choices are available to a non resident in order to decrease the tax obligations from the sale of a property in Spain? Without doubt, one of the best options is to set up a Spanish limited company and buy the property through it. When a limited company sells before one year from the date of purchase, it must pay 40 percent capital gains tax. But, if it sells after one year from the date of purchase, it will pay ONLY 15 per cent capital gains tax, as if it were a resident (it is actually a ‘resident’ in Spain, as it has its domicile in Spain). There is also another advantage; five per cent of the declared price will not be retained at source on account of capital gains obligation.

Another fiscal advantage worth consideration is the huge difference that can sometimes occur between inheriting a property owned by a Spanish limited company and a property owned by a non resident. These differences do need to be considered on a case by case basis and legal guidance is of paramount importance.

The formation of a Spanish limited company is a very straightforward process once suitable fiscal/accountancy representation has been appointed. This will, as you would imagine involve a certain amount of expense and in addition you would have to lodge the “share capital” (€6,000) in the company accounts.

To conclude, we must add that it is not always advisable to buy a property through a Spanish limited company and we would recommend a limited company is an option worthy of consideration when two sets of circumstances come together
1) When the property has a value higher than 300,000 euros
And
2) The purchaser has no intention of becoming a resident in Spain.

It is our intention that this concise article will offer some guidance only and in no way does it substitute for qualified, specialised legal advice.