The process of buying a property through the acquisition of a company in Spain can be complex, particularly when it comes to understanding the tax implications.
The main issue revolves around whether the transaction is subject to VAT (Value Added Tax) or ITP (Impuesto sobre Transmisiones Patrimoniales y Actos Jurídicos Documentados – Transfer Tax), or if it is exempt from these taxes due to the nature of the transaction. This situation is further complicated by Spain’s Anti-Fraud Law, which aims to prevent tax evasion in property transactions carried out through the transfer of company shares.
Basic Concepts and Transactions
Direct Property Purchase:
– VAT Application:
If the property is new and the seller is a developer or company, VAT is usually applicable. This is often the case in the first transmission of the property.– ITP Application:
If the property is second-hand or not linked to the seller’s business activities, the purchase is generally subject to ITP instead of VAT.Acquisition of a Property owned by a company:
– When you buy a company that owns property, you are indirectly acquiring the property through the purchase of the company’s shares. This can sometimes allow the buyer to avoid direct property transfer taxes like VAT or ITP, depending on the specific circumstances of the transaction.The Anti-Fraud Law
The key legal framework governing this type of transaction is Article 314 of the Consolidated Text of the Securities Market Law (TRLMV), which contains anti-fraud provisions designed to prevent the misuse of corporate share transfers as a means to avoid paying VAT or ITP on property transactions. – General Exemption: Normally, the transfer of shares is exempt from VAT and ITP. – Anti-Fraud Rule: However, if the real intention behind the transfer of shares is to avoid paying VAT or ITP that would have been due if the property was sold directly, the transaction may still be subject to these taxes. This anti-fraud measure ensures that if a transaction is deemed to be structured primarily to evade taxes, the relevant taxes must be paid.Specific Scenarios
Scenario 1: No Intent to Evade Taxes
If the property is genuinely used in the company’s business activities (e.g., construction, rental, or property development), and the company is engaged in an ongoing economic activity, the transfer of shares is likely to be exempt from VAT and ITP.Example: A company is involved in the development of multiple properties. During the course of its business, a buyer expresses interest in purchasing the company rather than just a single property. Since the company’s activities are clearly tied to economic activities and there is no intention to avoid tax, the transfer of shares may be exempt from VAT and ITP.
Scenario 2: Potential Tax Evasion
If a company is established solely for the purpose of constructing a single property, and the shares of the company are sold immediately after the construction to transfer ownership of the property to a buyer, this might be seen as an attempt to avoid paying VAT or ITP.Example: A company is created to build one house with the intention of selling it to a specific buyer who appears as soon as construction begins. If the Tax Office views this as a strategy to avoid the taxes that would have been due on a direct property purchase, they may apply VAT or ITP to the transaction, even though it involves the transfer of shares.