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As tax laws have changed over the years the disadvantages of owning Spanish property through a company have increased. Today you are unlikely to receive the tax benefits you were hoping for and may even be worse off than owning the property directly. Here are some of the key tax implications.

Spanish residents owning property through a company where it is available for their use:

 

  • The shareholder must pay market rent to the company, for the use of the property. If not, the tax office determines a deemed rent based on its value.
  • The company has to pay Spanish corporation tax.
  • Any distribution of profits to the shareholder is subject to Spanish income tax at the savings income rates.
  • The main residence relief from capital gains tax would not be available, even if it is the shareholder’s home.
  • The shares in the company are effectively included for wealth tax, without the benefit of the €300,000 main home allowance.
  • Beneficiaries are not entitled to the main home reduction for succession tax.
  • Shares in foreign companies need to be included on Modelo 720.

 

Taxation of non-residents:

Again, if the property is available to shareholders, they pay a market rent to the company. Distributions of profit are liable for Spanish income tax.

The company is required to pay non-resident tax.

Rental income and capital gains tax are taxed in Spain at company level at 19%.

Some of Spain’s double tax treaties, including with UK, Germany and France, include a clause allowing Spain to tax shareholdings of foreign companies which mainly own Spanish real estate. So shares in these companies are subject to Spanish wealth tax for non-Spanish residents.

Tax haven companies

There are additional considerations if the company is resident in a tax haven. For example, there is an annual 3% tax based on the property’s value.

This is a brief summary and each case should be examined individually.

Also remember the importance of diversification – being over exposed to any asset is risky. Property is also an illiquid asset, hard to sell suddenly, and you cannot sell just a part of it to release funds. Your investment portfolio should have a good balance of property as well as liquid, easily diversified assets like shares and bonds.

Any questions? Ask our advisers for help.

Summarised tax information is based upon our understanding of current laws and practices which may change. Individuals should seek personalised advice.