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News and Events on Spanish Laws and Taxes

Do I need to set up a company in Spain for rental activity?

Many clients ask us, do I have to create a company in Spain to rent my property in Spain, or may I do it as Phisical/individuals?

In response we have to say that it is NOT necessary to create a company in Spain to rent your home. You can do this in many ways:

– As a Natural Person.- You may buy the property in your name and rent your property without any problems.

This rental activity will be subject to the Personal Income Tax, in its “resident” or “non-resident” modality, taking into account its status as tax resident in Spain, with a tax rate of 19% (for persons physical residents in the European Union) or 24% (for the rest).

Click here to know more about the Income Tax of Non-Resident Individuals

As a Non-Resident Legal Company WITHOUT Permanent Establishment in Spain. If you wished to develop a moderate rental activity in Spain, you may register your company in Spain using this formula. In the event that you have a company already created in your country, you can buy through your company, provided that it is empowered in its statutes to carry out the rental activity.

This activity, and the income it generates, will be taxed in Spain through the Income Tax of Non-Resident Individuals, with a tax rate of 19% (for companies resident in the European Union) or 24% (for the rest).

This tax rate is lower than the Spanish Corporate Tax (25 %), and it has lower less running expenses, but, as opposite, it has lower possibilities to reduce taxes by expenses derived from the rental activity, as it is only allowed to reduce some concepts of expenses, and exclusively prorated to the time in which the property has been in activity.

Click here to know more about the Income Tax of Non-Resident Companies without permanent establishment

In the both precedent cases, you may opt to buy the property 100 % in the name of a natural person, or a non resident company, or buy it in conjunction with a determinate percentage on your name, and another percentage in the name of the company (or using another alternatives as buying yourselves the usufruct of the property, and the company to buy the bare ownership).

As a Legal Entity not Resident in Spain WITH a Permanent Establishment. If case you wished to develop an intense rental business activity in Spain, within an investment program or project, and you needed a certain business structure in Spain, such as offices, employees, etc., you may register a “Branch” or ” Delegation” of your company in Spain. This company, although it has separate and individualized accounts for the activity it carries out in Spain, will belong to, and depend on,  the parent company to which it is linked.

This business activity, as well as the income and expenses it generates, will be subject to Spanish Corporation Tax, with a tax rate of 25%. This tax is higher than the Non Income Tax, and it has higher running expenses (book keeper, tax advisers, etc), but it has wide possibilities of reduction on taxes with all the looses and expenses derived from the activity.

Click here to know more about Corporate Tax in Spain

As a Spanish Legal Entity (SL or SA). Same as in the previous case. In the event that you wished to develop a solid and lasting business activity in Spain, and, as in the previous case, you wish to employ material and/or human resources (employees, etc.) in Spain, you may opt to set up an independent company in Spain, which may adopt the most common figures of SL (Limited Company), or SA (Sociedad Anónima). In this case, the company created will not act as a “branch” or “delegation” of your company, as it will be totally independent one.

Tax treatment will be exactly the same as in the previous case as incomes and expenses generated from the activity will be subjected to Spanish Corporation Tax, with a tax rate of 25%.

Therefore, as explained above, and by way of conclusion, the acquisition of a house as a natural person in Spain is perfectly possible for development of rental activities and the profitability of real estate, on a small scale.