Purchase of Spanish property through a company outside Spain

The advantages of external companies in the purchase of real estate

It is best that any purchasers from abroad (be they permanent residents or not) purchase property through local limited liability companies, which are called "Sociedad Limitadas" in Spain. This type of company may be owned by a foreign company, thus allowing the shares to be transferred more easily, which allows more flexibility and may affect tax charges in Spain at a later date. When the property is sold, it is the shares of the holding company that can be sold, instead of the property itself. Therefore it is useful if the bank, or a legal firm or an accountancy practice keeps custody of the holding company's shares. In addition, it is useful if the holding company has no other purpose except for holding the shares in the property company.

The system since 1992 and the naming of fiscal representatives

Up until 1st January 1992, when the Law 18/1991 was put into effect, non-resident companies could be used to eliminate some of the taxes relating to the transfer of Spanish real property. Since that time, and the new rules to combat tax evasion, and to regulate overseas investment in Spain, the purchase of Spanish property has not been made more difficult, but simply more bureaucratic. For example, any investment which is more than € 30,050 and any investment made through a company in a recognised tax haven has to be approved by a government department (Departamento de Transacciones Extranjeras).

If the investment is made by non-residents, they have to name a fiscal representative who will be able to handle national tax obligations, and obtain a fiscal identity number which is needed; to get a Spanish bank account or to contract a insurance policy. It must be noted that, should an company with activity in Spain does not appoint a fiscal representative, they could be fined between € 150,235 and € 601,012. 

Capital Gains

Any capital gain on a principal private residence is likely to be exempt from capital gains tax as long as the money is reinvested within two years. Other types of investment in property and in houses which are not principal private residencies are usually not exempt from capital gains on sales of investment properties. A non-resident cannot get any exemption for principal private residence and any capital gain is subject to capital gains tax. 

Special Taxes and Exemptions

A Spanish company is subject to corporate taxes and tax on capital transfers and is not subject to the special 3% tax on non-resident companies. The base for calculating the tax charge is the total profit on worldwide income. The principal types of companies are the public-type company (sociedad anónima) (SA) and the private-type company (sociedad limitada) (SL). There are some exceptions to paying corporate taxes, when there is a reinvestment in a new fixed asset (within specified limits and within guideline percentages) and these exceptions need to be approved by the tax authorites. In addition, a company will have to pay the special 3% notional rent tax, based on the catastral value of the property, unless they benefit from any of the exemptions stated elsewhere. In reality, a non-resident company is subject to special taxes or local taxes, but not to both at the same time. If they fail to pay the special taxes, the property will be subject to a legal charge, enforced by the contributions authority, until the required amounts are paid. 

Spain, as a member of the European Union, and signatory of many double tax treaties, which exempt some properly taxed companies from the 3% charge to be paid by foreign real property investment companies.

The following exemptions are available:

• If the property is owned by a foreign administration or an international body such as the United Nations.
• If there is a double tax treaty between Spain and another country, or a treaty which allows swapping of information between Spanish and some foreign authority. 
• It can be shown that the company is an investment company in the Spanish market and that the purchase and sale is for investment purposes and not as a vehicle for a private individual. 
• The tax identity of any proprietors and the source of any investment fund needs to be declared to authorities, provided that the Spanish authorities are notified of any change in ownership of property. It is possible to be free of paying the 3% annual charge, using an exemption, whereby the property is held through a Spanish limited company, which purchases the property directly. It may be possible to take advantage of the double tax treaty between the UK and Spain, allowing the UK company to be owner of a property in Spain.