Sometimes the option of acquiring a property in Spain is raised through a company created in Spain by a non-resident individual national of a country outside EU.
In these cases, often the company created will not have more activity than rent, specifically, the eventual rental income obtained through the same use that the individual will make of the property, as well as eventual incomes for rent to third parties for the seasons that the individual does not use the property.
Therefore, the type of society that we would be creating in Spain would be a PATRIMONIAL/EQUITY COMPANY
In these cases, as a patrimonial company, whose main shareholder is a non-resident individual, we will assess both the tax aspects of the acquisition, as well as the management, as well as its subsequent sale.
1.- ACQUISITION
This is what refers to the acquisition, the expenses and taxes here would be exactly the same as in the case of an individual.
That is, in the event that the acquisition of the property is subject to VAT, it cannot be deductible by the company. This is so, because the patrimonial companies that do not have economic activity, cannot deduct VAT. It is understood that the mere rental activity carried out by these type of companies to the individual shareholder itself, as well as to third parties, is not enough to consider said activity as an “economic activity” that can generate or compensate VAT.
2.- MANAGEMENT
Regarding the tax management of the company, we must establish the following:
– Creation of society. It would be necessary to carry out the appropriate formal and procedural aspects for the creation of the company, which go through a fiscal representative, general manager, registry, presentation of quarterly tax declarations for incomes, etc.
-The use that the individual makes of the property must be considered as a rental, where the individual himself formalizes through a rental contract at market prices, with the company.
The company, therefore, must declare this rental income, at the general Corporate Tax rate of 25%.
-As deductible expenses, being a company, corporation tax allows deducting all kinds of expenses that have to do with the activity.
As well as, for example, the maintenance, cleaning, repairs, amortization, and the fees of the professionals who manage the company (advisers, tax specialists, lawyers, etc.). Therefore, all these types of expenses can be perfectly deductible from the income obtained through the rent generated not only by the individual shareholder, but by any other third party to whom the property has been rented.
– Which are the reasons to set up a patrimonial company in Spain?
The main reasons are “fiscal” advantages to its partners:
1.- Assets will be liable to Corporate Tax (CT). The main consequence is that the company will be taxed with the General Rate for CT, which is 25 %.
This makes an advantage when the shareholder is a “Spanish resident”, overall in investments of high values which could be taxed with higher rates for personal Income Tax if the investment was executed as individual.
2.- They are not taxed by the Wealth Tax but by the Corporation Tax. This can be a great tax saving in the event that the assets were very high.
3.- You will be able to deduct in the Corporate Tax the expenses necessary for the maintenance of the properties that generate income for your company.
4.- Eliminate the risk (case of bankruptcy) inherent in the development of an economic activity; possible corporate debts that could make these assets could be seized in case of being affected.
5.- Family assets are protected.
6.- Estate succession is facilitated for the heirs.
7.- You save on personal income tax if you have properties that are not your usual home.
8.- The taxation of income that may occur in companies will be made at the general tax rate (25%), instead of paying the average tax rate.
Disadvantages
1.- These entities may not apply some tax benefits as the 15% tax rate applicable for newly created entities.
2.- Nor will it be able to apply the tax incentives that are established for small entities.
3.- They may not apply the exemption to avoid double taxation on dividends and income derived from the transfer of securities.
Out of the 25 % Corporate Tax, there is an additional 19 % for every dividend or income received by a non resident in Spain. In case of Spanish companies with “economical activity” shared by non residents, every income or distribution of dividends coming from a Spanish company may be protected by the eventual “Double Taxation Conventions” between Spain and the country of the tax payer residence. So, this extra dividend tax of 19 % could be reduced in eventual conventions between Spain and the country of the tac payer.
But, in case of “Patrimonial companies”, the 19 % tax for dividends or profits obtained from a Spanish company will not be exempted nor protected by any Double Tax Convention, so, it will be taxed in full.
4.- Negative tax bases cannot be offset when a series of requirements are met.
5.- When there are modest assets, it may not represent savings. In the first place, because they will apply smaller sections of personal income tax.
6.- The constitution and the maintenance of the company (and its management) has a series of costs.
7.- If the property is used by any of the shareholders, the occupation of the property must be formalized by a renting contract to authorize the shareholder to use the property, with a market-valued rent, and the payment of that rent is taxed with the General Tax Rate of 25 %.
3.- DIVIDENDS
If the company had benefits, and the individual shareholder decided to make their own, then we would enter into the complicated tax situation that is the obtaining of income in Spain by a non-resident without a permanent establishment.
What the tax regulations establish in these cases is that, being an individual, non-resident in Spain, who obtains income through a non-permanent establishment, and being the company a Patrimonial one, the rules in this regard would apply, which are the following:
Corporate tax 19 % for dividends or profits and this will not be exempted nor protected by any Double Tax Convention, so, the amount of the dividends obtained will be taxed in full.
4.- TAXES IN CASE OF SALE
In case the company decided to sell the property, the eventual profit obtained will have the right to reduce EVERY expense, tax and other costs as per a normal company, except the VAT.
So the price obtained from the sale can be compensated with the price of acquisition, amortization, running costs, taxes, etc as per a standard company.
For more information about taxes on properties and incomes, please visit our specialised section:
What is better in tax when buying a house in Spain, buying with company or as individual?
TLACORP 2021
