Buying a property in Spain through a company
Is it possible to acquire a property in Spain in the name of a company? The quick answer is yes, but it is important to consider several factors first to avoid any inconvenience or legal problems.
How to buy a property through a company?
The process of buying a property in Spain through a company is comparable to that of a private individual, although there are some differences in documentation, tax obligations and deduction of expenses, among other aspects.
For example, in the case of a company, it may be necessary to submit additional documents, such as articles of association, annual accounts or proof of solvency. In contrast, a private individual is not usually required to provide this level of accreditation in most cases.
Furthermore, the accounting treatment of the property and the tax liabilities also vary between the two.
Buy a property in Spain through a company being Non-Resident
Like Spanish residents, a non-resident can also acquire property in Spain through an existing foreign company. This company, once registered in Spain, can operate as an investment vehicle in Spain without the need to create a new Spanish company.
It is important in these cases to have legal representation in Spain due to lack of knowledge of the regulations and to ensure that the procedure is carried out legally and safely, both for the company acquiring the property and for the transferee.
Requirements to avoid being taxed by the wealth tax
When a property is acquired in the name of a company, it creates a legal personality included in the assets of the company and therefore its value is considered to be part of the shareholders’ assets, either directly or indirectly.
If the aim is to avoid taxation on the property, it is necessary to comply with the requirements for exemption of shares from Wealth Tax. These requirements are as follows:
The company must carry out an economic activity and not be principally engaged in the management of movable or immovable property (immovable property not linked to an economic activity may not be considered as part of the company).
- The shareholders must have at least a 5% individual shareholding or a 20% joint shareholding with close relatives (spouse, ascendants, descendants or collaterals of the second degree).
- The taxpayer must exercise managerial functions, evidenced by a contract.
- The salary for management functions must represent more than 50% of the taxpayer’s income from work and economic activities.
If the above requirements are not met, the tax office will consider that the property is not linked to the economic activity of the company, and therefore the book value of the property (purchase price) will be included in the equity of the partners according to their shareholding in the company.
Possible tax penalties for buying the property.
When a company acquires a property intended to be the residence of one of its partners and a rental contract is formalised, significant tax benefits arise. The company is able to deduct many of the costs associated with the purchase of the property, as well as those arising from the rental, from its corporation tax. This includes expenses such as maintenance, repairs and related taxes.
In contrast, if the partner were to purchase the property directly as an individual, he or she would not have access to these deductions, which limits the tax advantages available.
Tax benefits for the company owning the property
When a company acquires a property intended to be the residence of one of its partners and a rental contract is formalised, significant tax benefits arise. The company is able to deduct many of the costs associated with the purchase of the property, as well as those arising from the rental, from its corporation tax. This includes expenses such as maintenance, repairs and related taxes.
In contrast, if the partner were to purchase the property directly as an individual, he or she would not have access to these deductions, which limits the tax advantages available.
Tax obligations
The main tax obligations of a company owning real estate include:
- Reflecting the property in the company’s balance sheets.
- Paying IBI (Real Estate Tax) on an annual basis.
- Declaring income derived from rentals or the sale of the property.
- If the property is new, pay the corresponding VAT (10% in most cases).
- If the property is second-hand, pay the Transfer Tax (Impuesto de Transmisiones Patrimoniales, ITP), the percentage of which varies according to the Autonomous Community.
- Pay the Stamp Duty (AJD), which varies between 0.5% and 1.5% of the value of the property. Also depending on the autonomous community.
Buy the property with real estate tax advisors.
Although it is legal to buy a property through a company, the Tax Agency could consider the transaction as an attempt to avoid tax, resulting in an investigation of the company and penalties.
To avoid problems, contact our specialised real estate tax advisors.