PURCHASING PROPERTY WITH NON RESIDENT COMPANIES
In the last years there are a number of clients who are purchasing property in Spain in the name of non-resident companies (Belgium, Dutch, British, etc) where they are directors or shareholders.
Once purchased, those properties are being made available then to their shareholders or directors who most of the times use them permanently or temporarily.
In Spain, resident and non-resident companies could be taxed when they put their properties at the disposal of their directors or shareholders. This is a quite an unusual thing to happen in the case of non-resident companies but could potentially happen. This does not apply when those properties are premises related to business or properties to be refurbished and sold never enjoyed by shareholders or directors, meaning that are used as current assets of a permanently established non-resident company and not as holiday or permanent homes.
The Spanish Government could potentially require the non-resident company to declare an implied rental income from the shareholder or director (article 12.2 non-residents income tax Law) being the rental income according to local market prices (article 18 Law of company tax).
This implied rental income is subject to non-resident tax at a rate of 19% in the case of EU companies or 24% in other cases (offshore companies have a different regime). There are numerous deductions on rental income (implied or not) when the company’s shareholders are EU residents so the final ta to be paid may not be high (subject to confirmation in each specific case since if the use of the property is considered as a part of the salary or payment of dividends the matter could change). Note that any case, owning property in the name of an individual is equally taxed through the non-residents income tax (in both cases of personal use or rental incomes)
Note that in some cases double taxation treaties allow the Spanish tax authorities to tax at the wealth tax those foreign companies that are created to just own Spanish properties (i.e. double taxation treaties with the UK or Germany). This won’t be the case if the properties owned by such foreign company have a value below 700.000,00 € or if there are numerous shareholders owning the company shares being their quote of ownership or the shares equivalent to a wealth in real estate below 700.000,00 €
We suggest our clients purchasing properties in Spain in the name of non-resident companies to:
– Check the taxation over real estate incomes or dividends with the company’s habitual tax advisor studying the Treaty signed with the kingdom of Spain to avoid double taxation.
– Use companies mainly for rentals or resale in short term. In case of rental incomes, note that it will be legally required to file quarterly returns.
We would be pleased to provide further guidance.
Criado & Kraus
Abogados – Solicitors – Advocats