Report: Steps to Follow When Buying a Business through the Transfer of an Operating Hotel or Restaurant

Initial Analysis and Feasibility

Many transfers include a surcharge for “goodwill” or brand reputation. Without proper analysis, the buyer may overpay compared to the real profitability of the business.

A prior financial review avoids unprofitable investments.

What to do:

Review the real situation of the business: turnover, profits, clientele, reputation, existing contracts.
Assess whether the transfer price corresponds to the current performance and future expectations.

Study of the proper way to run the business. Foreign company?, Spanish company?, Self-employed?

There are several formulas to buy and to develop the business with direct implications in legal aspects, and other like taxes, responsibility, labour, administration.

Get the following questions confirmed is essential:

Buy the business/lease using a company, or individual (self-employed)?
Who will be manager or the responsible of the business?
Employees?, How many?

These are essential questions to have clear on mind before to take the final decision to proceed with the business. It is important to consider who will be liable for social security, labour laws, taxes etc, and the best way adopted in the most profitable and secure manner.

Review of Licenses and Authorizations

A business without proper licenses—or with irregular permits—can be shut down at any time by the authorities. Moreover, license transfers are not always automatic: in many municipalities, the buyer must formally request a change of ownership. If this is not done properly, the new owner can even be held liable for previous sanctions.

It is essential to check that the current activity respects the activity license, otherwise you might get problems with the local administration to renew the existing license. This is one of the most important points to check.

We find in many occasions that the owners of the business initially obtained the Activity License with determinate conditions, constructions, infrastructure and equipment. But, with the time, the same needs of the business has demanded changes in the construction, infrastructure, equipment, which not always respect the laws, and which could not be covered by the license obtained.

Consequences of this:

Fines at the local Town Hall for the constructions built or reformed without the proper permission (even orders of demolitions).
Problems to renew the Activity License, or to change in the name of the future buyers of the business.

What to do:

Confirm the existence and validity of the operating license (City Council) and Sanitary license.
For hotels, check the registration in the Tourism Registry of the relevant Regional Authority.
Review ancillary permits: outdoor terrace use, background music, slot machines, vending machines.
Obtain confirmation about:
- The exact and updated information of the construction, infrastructure and equipment on the business.
- To confirm that the above elements respect both:
  - Urbanistic and construction normative
  - Activity license

Legal and Urban Planning Review of the Property

Hotels and restaurants often operate despite having irregularities in their premises.

It is common to find unauthorized construction reforms, alterations or extensions , plots partially occupying public or protected land, or buildings not legally registered.

These issues can lead to fines, demolition orders, or denial of future licenses. That’s why a full legal and urban planning audit is essential, almost as if it were a property purchase.

What to do:

Obtain a land registry extract to confirm true ownership and identify charges or liens.
Compare with the cadastral certificate to verify surface and registered buildings.
Review municipal urban planning rules: confirm the zoning allows hotel/restaurant use.
Check that all constructions and expansions have the proper building permits and final completion certificates.
Verify boundaries: ensure the plot used by the business actually belongs to the landlord and does not encroach on public or third-party land.

Contractual Aspects of the Transfer

The transfer of business can be done in different ways:

Buying the ownership of the property with the business included

In this case, the buyers are acquiring the property where the hotel/restaurant is being developed, and the transaction is formalized as a special Purchase contract with the additional concepts and elements included in the business (equipment, infrastructure, licenses, etc).

Buying the business- Business transfer (by lease assignment) (In Spanish “Traspaso”.

In this case, the “owners of the business” are not the “owners of the property”. The owners of the business (tenants) are renting the property to the owners (landlords) of the property in order to develop the activity of restaurant or hotel.

Thus, the transaction is considered just as a sale/buy of the lease.

So, in this case rests on two legal pillars:

The business lease agreement, which is the existing rental contract between the landlord and the tenant.
And the business transfer contract where the buyer buys the business to the tenant.

As explained above, the buyer of the lease will make 2 actions:

Buying the business to the tenant.
Adopting the position of the tenant in the rental contract with the landlord.

So, before signing the transfer contract with the tenant (vendor of business) it is highly recommendable:

To check the business lease agreement, in order to be fully aware of the future legal conditions in which the buyer will enter with the landlord.
To check that there is not any impediment from the landlord to authorize the sale of the business, with the consequent tenant’s substitution.

Conclusions:

Review the lease agreement: whether it allows transfers, rent conditions, remaining term, and landlord’s rights (pre-emption, buy-back).
Formalize a detailed transfer contract: specify which rights and assets are being transferred (license, equipment, furniture, stock, goodwill, employee contracts).
Define payment terms and possible guarantees.

Financial and Tax Due Diligence

In many transfers, the buyer inherits not just assets but also liabilities: hidden debts, outdated machinery, or expensive supply contracts. Prior due diligence helps adjust the purchase price or even avoid the operation if risks are too high.

What to do:

Review the company’s accounts and tax filings for the last 3 years.
Check for outstanding debts with tax authorities, social security, suppliers, or banks.
Verify supply contracts (water, electricity, gas, internet) and whether there are long-term commitments.
Assess the condition of machinery, installations, and furnishings.

Employment Issues

In the Hotels and Restaurant activity, the law or collective agreements often force the buyer to take on existing staff. This means inheriting both employees and their acquired rights (seniority, pending holidays, possible lawsuits). Ignoring this can lead to heavy unexpected costs.

What to do:

Review all current employment contracts and employee seniority.
Confirm whether the collective bargaining agreement requires mandatory employee transfer in case of business succession.
Calculate future employment costs: severance, unpaid wages, pending contributions.

Tax Aspects of the Transfer

The way the deal is documented has a major impact on taxation. Poor tax planning can significantly increase the total cost of the transfer. Also, if the Tax Authority believes the declared price is too low, it can reassess the transaction value and impose additional taxes.

Determine whether the transaction is subject to Transfer Tax (ITP) or VAT, depending on whether a full business or only assets are being transferred.
Assess tax consequences for the seller (personal income tax or corporate tax).
Plan the structure with a tax advisor to optimize costs.

Tax Implications when buying a Restaurant / Hotel

As explained above, there are 2 scenarios when buying a Restaurant / Hotel in activity.

1.- Buying the Business (without the property)

2.- Buying the Business and the property

Let’s explain you the difference in taxes when adopting any of the above scenarios.

Case 1: Transfer of the Business (without the property)

What is transferred: operating license, tourism registry inscription, goodwill, lease contract, furniture, equipment, and clientele.

Taxation:

- Subject to Transfer Tax (Impuesto sobre Transmisiones Patrimoniales Onerosas – ITP, modality: transfers of assets and rights).
- ITP by regions:
  - Cheapest: Madrid, Galicia, and the Basque Country (4%).
  - Intermediate: Catalonia (5%) and the Valencian Community (6%).
  - Most expensive: Andalusia and the Balearic Islands (8%).

Case 2: Purchase of the Property + Business

If, in addition to the business operation, the ownership of the building or plot is also transferred:

- Transfer of the property:
  - If the seller is a private individual → Real Estate ITP

ITP on property acquisitions by regions:

Cheapest: Madrid (6%), Navarre (6%), Basque Country (7%).

Intermediate: Castilla-La Mancha, Aragon, Murcia (8–9%).

Most expensive: Valencian Community (10-11%), Galicia and Catalonia (10-11%), Balearic Islands (up to 11%).

- - If the seller is a company → subject to VAT (generally 21 %, or 10 % if it qualifies as residential/tourism use), with possible waiver of exemption.

Tax implications of the sale of the property when the seller is a company

1.- VAT on the purchase and sale of real estate in Spain (when the seller is a company/developer)

General VAT rate 21 % on real estate: The sale of real estate by a company or developer is initially taxed at 21%.

Reduced rate of 10%. Reduced rate of 10% instead of 21%.

Applies only in two cases:

Residential (first delivery of new construction):
Residential, garages (max. 2 per home), and annexes sold together.

It means that if Hotels, aparthotels, and tourist accommodations are built as residential buildings according to planning regulations, 10 % applies.

Example: An aparthotel that is urban planning classified as “tourist residential” pays VAT at 10%.

2.- Exemption and Waiver of Exemption (Second-Hand Sales):

For second and subsequent property transfers, the transaction is, in principle, exempt from VAT.

However, the seller and buyer can waive the exemption (if the buyer is a business owner and is entitled to deduct the VAT).

In this case, instead of Property Transfer Tax (ITP), VAT (21% or 10%, as appropriate) and a reduced Legal Action for Legal Development (AJD) would apply.

Practical Examples

Sale of a new hotel by a developer: VAT 10% (residential tourist use).
Sale of an empty commercial premises (not a home, not a hotel): VAT 21%.
Sale of a second-hand hotel (already in use):
In principle, exempt from VAT → subject to Property Transfer Tax (ITP 10% in the Valencian Community).
If the exemption is waived, VAT (10%), so, no VAT to pay + Legal Action for Legal Development (AJD) may apply.

Post-Transfer Management

The business must continue seamlessly after the transfer. If licenses are not updated correctly, authorities may impose fines or shut down the establishment. Moreover, maintaining continuity with suppliers and clients is crucial to preserve reputation and customer base.

What to do:

Formally apply for change of ownership of licenses at the City Council and Regional Authority.
Update supply contracts (utilities, internet, gas, etc.).
Notify suppliers, clients, and booking or delivery platforms.
Update commercial image and marketing (website, social media, advertising).

Conclusions

Buying a business through transfer should be approached with the same rigor as a property purchase.
Each area (licenses, contracts, debts, staff, urban planning, taxation) protects the buyer against hidden risks.
The most critical point is the legal and urban planning audit, ensuring the premises and land are fully compliant.
Only a complete due diligence guarantees that the price paid reflects a solid and lawful business.