Buying Property In Spain Via Company Structures

1. The Property Market

It is predicted that up to 1.7 million people will purchase property in Spain over the next five years with half to buy on the Malaga coastline. With low-rate mortgages currently available to both residents and non-residents alike and with expert predictions of sustainable property growth the prospect of acquiring that residential or investment property has never looked so appealing.

2. The Costs

It is well established that as a general rule the approximate costs associated with the purchase of property is between 10-11% of the purchase price.

The costs encompass the following, namely:

(1) VAT (if new property) or Property Transfer Tax 7%,
(2) Notary fees,
(3) Lawyers fees,
(4) Other costs.

3. The Advantages of Purchasing through a Company Structure

The purchasing costs of property are generally the same if purchased  through corporate ownership or individual names.

The corporate ownership does, however, have significant advantages (explained below) that must always be seriously considered. The usual structure that we recommend is the Spanish S.L. Limited Company owning the title to the land or property with an underlying non-resident (offshore) corporate shareholder, for example, a Delaware, BVI or Gibraltar company.

In some circumstances an offshore trust can be created to become the shareholder of the offshore company with the purchaser benefiting from significant tax and other non-tax related advantages. These advantages are, namely:

(1) No 18% Capital Gains Tax

In light of the substantial increases in property prices the avoidance of this tax is an important consideration. If the property is sold under the corporate structure it is the simple transfer of shares that is actually sold at a mere cost of approximately 1% or less of the transaction value. The “sale” of the property, therefore, takes place outside of the Spanish tax net.

(2) No 10-11% Transfer Costs

As the shares of the offshore company are being sold the transaction would not attract the usual 10–11% of the purchasing costs for the purchaser, thus, providing important leverage for the seller in negotiating the selling price. The costs involved in transferring ownership to the purchaser are about 1% as explained above.

(3) No Inheritance Tax in Spain

The tax rates vary between 7% and 34%, depending on the nature of the relationship between the deceased and the beneficiary. This tax is payable by all individual owners irrespective of where they are resident. Through corporate ownership the Company will not have to pay any inheritance tax.

(4) No Property Transfer Tax

The sale of the property will be made by way of transfer of the beneficial interest in the shares of the parent company therefore the sale of the property will not incur the 7% Property Transfer Tax.

(5) Confidentiality

Corporate ownership provides complete confidentiality, which means that individual purchasers' names do not appear on any public record. This consideration and advantage is becoming more apparent in terms of recent international and EU developments on exchange of information etc. Coupled with the above is the increase of a pro-litigious culture which makes the protection and security of ones' assets ever more vital and prudent.

(6) Costs

The cost of setting up and maintaining a corporate structure for the ownership of your property will appear nominal when considered against the numerous tax breaks that are gained.