Buying a Property in Spain through a Limited Company: advantages and disadvantages

Buying a Property in Spain through a Company offers advantages worth studying; learn the do's and don'ts in Spanish Property Law.
Article Published: 17 Apr, 2015, Updated: 22 Nov, 2022 under Property Purchase

Inheritance Taxes

There certainly are advantages to buying a Property in Spain through a Limited Company. You can either create a Spanish Limited Company and own the property indirectly by owning shares in the said Company.

This option is recommended when there is a need for relative anonymity, in which case you obviously cannot be administrator of the company –all information about administrators is public and can be easily found in the Spanish Mercantile Registry-.

It has also been asserted that purchasing via a company may reduce the liability to pay inheritance taxes in the future. However it should be borne in mind that the European Court of Justice has recently ruled that the Spanish tax authorities cannot charge different rates of inheritance tax for residents and non-residents and the relevant Spanish Laws have been modified accordingly, by Ley 26/2014, which came into force on January 1st, 2015.

The new legislation provides that European Union citizens, ordinarily resident in another European country, may benefit from the same deductions as are available to residents of the region in Spain in which their assets are located. Therefore, this Spanish tax liability may already be much lower than previously was the case.

It is also worth bearing in mind that, if you put the property in the name of a foreign company that does nothing other than merely hold this property in Spain, it is possible that the beneficiaries will need to pay inheritance taxes in Spain for having inherited a Spanish property, even though the property is transmitted in the country of origin together with the shares, if it is construed that the only objective of the company is to evade taxes. There would also be potential liability to fines in such as case.

Fiscal Obligations of Owning a Company

If buying via a corporate entity, you will also need to consider the following factors:

  1. Non-resident individuals or companies that are owners of a property in Spain that is not offered for rent to third parties (eg holiday makers), must pay a yearly “non resident” tax to the Spanish Tax authorities which is an amount equal to 24% of 1% of the rateable value of the said property. Meanwhile, Spanish Limited Companies that accrue a property pay corporation tax that varies between 0 and 30% of the profits, depending on how high they are. In both cases, there are other annual taxes, ie local tax for having a property in Spain -IBI- etc.
  2. Spanish companies are obliged to keep some records, such as shareholder’s registry, balance sheets, inventories, daily journals and to deposit annual reports and balances in the Spanish Mercantile Registry. You will therefore most likely need to budget for this to be managed on your behalf.
  3. Foreign companies need to name a tax representative in Spain and pay yearly tax representation.

What Taxes & Costs are payable when Purchasing a Property via a Company

Taxes when purchasing a property in Spain are the same for individuals and Spanish companies, and they normally represent approximately 12% of the value of the property.

  • Capital gains tax: typically, paid by the seller to the central government
  • Government Transfer tax: may vary but normally 8% of the value of the property
  • Notary fees
  • Lawyer's fees
  • Land Registry fees.
  • Capital Gains Tax (plusvalía), this is paid by the seller to the local administration if they are a Spanish resident -or retained from the price by the buyer if they are not.

Summary

To summarise:

  • Purchasing a property in the name of a foreign company is a good choice if this company operates in Spain -ie, for renting or selling properties here, etc.- but not if the only reason for this is paying lower inheritance taxes in the future, since the Spanish law has been changed as a result of the recent European Court of Justice decision.
  • Purchasing the property in the name of a Spanish company for mere enjoyment involves the payment of annual taxes and reporting obligations. This will almost certainly require that the purchaser retains the services of a tax specialist to manage this responsibility, thereby incurring additional fees.

When taking into consideration all of the above, including the benefits and the drawbacks, if you are planning to buy a home in Spain for mere enjoyment, I would advise to do so in your own name instead of buying a Property in Spain through a Limited Company.

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