• ENGLISH, FRENCH, DUTCH, GERMAN AND RUSSIAN SPOKEN

SPANISH TAXES ACQUISITION REAL ESTATE IN SPAIN VIA INDIVIDUALS OR COMPANIES – REAL ESTATE INCOMES

INCOME TAX  – CORPORATE TAX

a) BUYING IN SPAIN AS AN INDIVIDUAL

Taxes and expenses will be different in respect of your consideration as Spanish Tax Resident or Non Resident.

a) SPANISH RESIDENTS

a.1) Taxes on the acquisition of a property

a.2) Taxes on incomes – Income Tax

a.3) Taxes on the sale – Capital Gains

a.1) TAXES ON THE ACQUISITION OF A PROPERTY:

No difference with non residents, except a REDUCTION OF 90 % average STAMP DUTY when acquiring a NEW BUILT house to be used as “permanent residence” by the buyer.

– ACQUISITON OF NEW BUILDNGS, PLOTS AND COMPANY-OWNED PROPERTIES:

– VAT on the acquisition properties cannot be deducted.

– The rest of the expenses of acquisition such as notary fees, land registry fees, solicitors,  derived from the acquisition  + structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

– ACQUISITION OF RESALES: Transfer Tax and the rest of the expenses of acquisition such as notary fees, land registry fees, solicitors, structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

a.2) TAXES ON INCOMES – INCOME TAX:

1.- General

Individuals who own homes in Spain are always obliged to submit annual income tax returns (IRPF) every year, and include their properties in said returns, and this both in the event that the taxpayer is a tax resident in Spain or not.

In the case of tax residents, the properties must be included in the annual income tax return, even if no income or income has been obtained from it (for example, rent, etc).

In the event that the property is the habitual residence (one that is used permanently for at least 3 years), although it must be included in the tax return, it is not taxed. It is exempt from the tax.

In the event that the property is not the habitual residence, that is, a second home (vacation home, garage, etc.), these properties must be included in the tax return, and, in the event that:

1.- Properties which have generated incomes (rent, etc). In this case, the income or income generated by the property is added to the rest of the income obtained in the owner’s fiscal year, and is paid according to the tax scale:

TAX RATE FOR REGULAR INCOMES
RentTax Rate
Up to 12.450 €19 %
12.450 – 20.200 €24 %
20.200 – 35.200 €30 %
35.200 – 60.000 €37 %
60.000 – 300.000 €45 %
+ 300.000 €47 %

 

 

In the event that the “permanent home” has been rented (in full or by rooms), the personal income tax law establishes that, on the net profit obtained from the rental activity (that is, the amount resulting from subtracting the income obtained less deductible expenses), it is possible to obtain a reduction of up to 60%.

For example, if in a year we have obtained 10,000 EUR of income from your permanent home, and you have had 4,000 EUR of expenses (repairs, reforms, taxes, etc.), you will have a net profit of 6,000 EUR. What the law says is that this amount will have a reduction of 60%. Therefore, only 6,000 – 60% = 2,400 EUR will be the definitive income tax base.

2.- Properties with no incomes– Imputation of Income: For those properties which have generated any income, they still have to be declared for tax, and they pay a “minimum” tax known as “Imputation of Income”.

It is a tax concept established by the Spanish system that basically considers that “all properties generate income even if they are empty or unused”. That is why the Spanish system will always consider that there has been a benefit, even though the house is empty, and that it will pay a «minimum» tax.

This «minimum» tax that is applied to the payment of properties that are not habitual dwellings is calculated on 1.1% of the cadastral value of the property (this percentage rises to 2% if the value has not been reviewed in the last decade).

This “minimum” will be applied for the period of time of the fiscal year that the property has not generated income. That is, this payment is proportional to the number of days that the property has not been rented.

For example: In the case of properties rented under the TOURIST RENTAL regime. These properties are taxed:

– For the time they have been rented, by the general income tax base for the days that they are actually rented, as we have stated above in this article.

– For the time that they are not rented, these properties are taxed for the «minimum by imputation» of income that remains empty.

2.- Expenses and reductions in case of renting:

The Spanish systems presents numerous tax benefits for incomes derived from rents.

As explained above, a 60% reduction is applied to that amount if the tenant has that house as their main residence (it would not be valid if a property is rented for commercial use, such as an office). The corresponding income tax bracket will already be applied to the result (which depends on the annual salary received by the taxpayer and which increases according to income).

These are the reductions accepted by the tax law:

  • Mortgage interests
  • Repairs and maintenance costs of the property
  • IBI-Council Tax, fees and other local taxes
  • Community fees and other common expenses
  • Amortization of the house and real estate (3 % as per Income Tax)
    • Deduction of 60% of the rent in case of permanent residence: However, it is important to know that tourist rental properties, unlike general rentals (those of season or long stay), although maintenance costs can be deducted, they cannot benefit from the 60% reduction.

It is also very important to know that the expenses of the TAX ADVISER fees and expenses to deal with the rent cannot be deducted in case of the tax payer is an individual.

* Regarding the rental income of STORAGE ROOMS and PARKING SPACES:

– Those that are rented together with the house and are located in the same building or urbanization are not taxed separately from the property to which they belong, up to a maximum of 2 parking spaces.

– However, in the case of parking spaces or storage rooms that are rented individually or separately from the apartment, they must be declared independently of the rest, and they do not have the 60% reduction.

c.3) Taxes on the sale: CAPITAL GAINS

1.- Calculation of the tax base

In order to calculate the BASE OF THE TAX for CAPITAL GAINS you have to consider the following formula:

PRICE OF THE SALE- PRICE OF ACQUISITION

  1. PRICE OF ACQUISITION is composed by:
  • Price of the acquisition
  • The cost of investments and improvements made in the assets acquired. At this point we must point out that the costs of conservation and repair will not be included in any case. Only reforms which implies structural reforms on the property or construction extensions are allowed. So minor works will not be accepted.
  • Expenses and taxes related to the acquisition, such as:
    • Commissions from real estate or other agents involved in the purchase operation.
    • Notary, lawyers, and registration expenses related to the acquisition deed and even the granting of the mortgage loan obtained for said acquisition.
    • Payment of taxes such as Transfer Tax and Stamp Duty
  • Other expenses related to the constitution of the mortgage of the loan granted for its acquisition. In no case will the interests paid for the loan be computed.
  • Any other expense that is incurred when acquiring the home and that is inherent to it.
  • In turn, the mortgage cancellation costs will reduce the sale value.
    1. PRICE OF THE SALE is composed by
  • Price of the sale
  • The rest of expenses and taxes related to the sale as real estate commissions, notary and Registry expenses, mortgage cancellation expenses, when these have been paid by the vendor.

Gains obtained by the sale of the property will be joined to the rest of incomes received by the taxpayer  (salaries, etc.) and taxed with the scale of tax rate as listed above this section.

2.- Differences with non tax residents

In case that you are considered as «Spanish Tax Resident» (which means that you are paying your income tax in Spain as a Spanish resident), then, once calculated the Capital Gains, you will have the following benefits on the tax:

  • NO CAPITAL GAINS FOR PERMANENT RESIDENCE: In case the property you are selling is your permanence residence (you have been using it for more than 3 years as your «permanent home»), then you will have the following benefits:
  • If you are younger than 65 years old: You do not pay CG for the amounts of the sale obtained «reinvested» in the acquisition of a new property to be used as your permanent residence. You have 2 years to practice this «reinvestment» (passed 2 years without invest those amounts, you will be taxed in full).
  • If you are older than 65 years old: You do not pay CG for the amounts obtained on the sale. And this even if you do not «reinvest» in a new property.
  • NO 3 % RETENTION: On completion of the sale, you receive the full amount of the price from the buyer with no retention applicable.

 

     b) SPANISH NON RESIDENTS

b.1) Taxes on the acquisition of a property

b.2) Taxes on incomes – Income Tax

b.3) Taxes on the sale – Capital Gains

b.1) TAXES ON THE ACQUISITION OF A PROPERTY:

No difference in respect to residents, except a REDUCTION OF 90 % average STAMP DUTY when acquiring a NEW BUILT house to be used as “permanent residence” which is not allowed in case the buyer has not in the intention to live in the property permanently.

– ACQUISITON OF NEW BUILDNGS, PLOTS AND COMPANY-OWNED PROPERTIES:

– VAT on the acquisition properties cannot be deducted.

– The rest of the expenses of acquisition such as notary fees, land registry fees, solicitors, structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

ACQUISITION OF RESALES:

– Transfer Tax and the rest of expenses of acquisition such as notary fees, land registry fees, solicitors, structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

b.2)  TAX ON INCOMES – INCOME TAX FOR NON RESIDENTS (IRPFNR)

1.- General

Individuals who own properties in Spain are always obliged to submit annual income tax returns (IRPFNR) every year, and include their properties in said returns, and this both in the event that the taxpayer is a tax resident in Spain or not.

In the case of NON tax residents, properties must be included in the annual income tax return, even if no income or income has been obtained from it (for example, rent, etc).

As the property is NOT a permanence residence, then, it is taxed as it is no exempt from the tax (as opposite of the case of Spanish Tax Residents).

1.- In case the properties have generated incomes (rents, etc). they must be  added to the rest of incomes obtained in Spain by the taxpayer during the whole fiscal year.

In case of incomes coming from RENT, it is very important to know that, as difference with the case of “Residents”, there is NO REDUCTION of the 60 % of the net profit as base of the tax.

2.- As stated in the case of the Spanish Tax Residents, in the event that the properties have not generated any income, they still have to be declared for tax, and they pay a “minimum” tax known as “Imputation of Income”.

This «minimum» tax that is applied to the payment of properties that are not habitual dwellings is calculated on 1.1% of the cadastral value of the property (this percentage rises to 2% if the value has not been reviewed in the last decade).

2.- Expenses and reductions in case of renting:

All the expenses allowed to the Spanish Tax residents in case of rent are also allowed in case of Non Residents to reduce the base of the tax, except of the 60% reduction in case of renting the permanent home.

The rest of the reductions are authorized, but there is an important difference between EU nationals and NON EU nationals about this reduction allowance.  

– EU nationals: When the tax payer is a resident in any of the EU countries, they can reduce from the base of the tax ALL the expenses derived from the activity who has generated the income/rent.

For example, in case of rent, it can be deducted expenses of maintenance, local taxes, cleaning, repairs, etc as per the ones authorized for Spanish residents.

– NON EU Nationals cannot deduct from the tax base the above expenses generated to produce the rent. So, the tax base will be the exact amount of the rent obtained yearly in Spain with no reductions.

3.- Tax Rate:  

The rent valued as per above (2.- Imputed Rent in case of empty house) , will be added to the rest of incomes/rents obtained from the property during the year (1.-Rent effectively obtained) , then reduced with the eventual reductions authroised, and then submitted to the following tax rate:

 

EU NATIONALS, Iceland and Norway

 

NON EU NATIONALS

 

19 %

 

 

24 %

 

b.3) TAXES ON THE SALE – CAPITAL GAINS FOR SPANISH NON TAX RESIDENTS

1.- Calculation of the tax base

In order to calculate the BASE OF THE TAX for CAPITAL GAINS you have to consider the following formula:

PRICE OF THE SALE- PRICE OF ACQUISITION

           1.- PRICE OF ACQUISITION is composed by:

  • Price of the acquisition
  • The cost of investments and improvements made in the assets acquired. At this point we must point out that the costs of conservation and repair will not be included in any case. Only reforms which implies structural reforms on the property or construction extensions are allowed. So minor works will not be accepted.
  • Expenses and taxes related to the acquisition, such as:
    • Commissions from real estate or other agents involved in the purchase operation.
    • Notary, lawyers, and registration expenses related to the acquisition deed and even the granting of the mortgage loan obtained for said acquisition.
    • Payment of taxes such as Transfer Tax and Stamp Duty
  • Other expenses related to the constitution of the mortgage of the loan granted for its acquisition. In no case will the interests paid for the loan be computed.
  • Any other expense that is incurred when acquiring the home and that is inherent to it.
  • In turn, the mortgage cancellation costs will reduce the sale value.

          2.- PRICE OF THE SALE is composed by

  • Price of the sale
  • The rest of expenses and taxes related to the sale as real estate commissions, notary and Registry expenses, mortgage cancellation expenses, when these have been paid by the vendor.

2.- Tax Rate:

Gains obtained by the sale of the property will be joined to the rest of incomes received by the taxpayer  (salaries, etc.) and taxed with the 19 % of the Gain obtained  as listed above this section.

3.- Differences with tax residents

Being you NON tax resident in Spain, the way in which you pay Capital Gains is the following:

  • NO EXEMPTION OF THE HOUSE AS PERMANENT HOME. As you are non resident, it is considered that you are not living on the property permanently.

 ON COMPLETION OF THE SALE: 3 % RETENTION: On completion of the sale, the Spanish administration forces the buyer to make a RETENTION of the 3 % from the value of the Price of the sale. So, you do not receive the full agreed price. The buyer keeps the 3 % of the total price and he has the obligation to deposit it at the Tax office. This is done «the same day of completion of the sale».

NOTE: Following the above example, in case the price of the sale was 260.000 EUR, the retention to be made by the buyer would be 260.000 * 3 % = 7.800 EUR.

  • BEFORE 6 MONTHS AFTER COMPLETION OF THE SALE: DECLARATION OF CAPITAL GAINS (19%): After completion of the sale, you have 6 months to present the «Capital Gains Declaration» to the Spanish tax office.  In this declaration, you (or your lawyer), must calculate the tax following the above example. In this case, the amount that you have to pay is of 3.040 EUR.

NOTE: As explained here, the CG derived from this transaction is of 3.040 EUR. As you were retained with a higher amount (7.800 EUR), then, you have a «credit» with the Spanish administration for the difference.

So, if the Spanish administration holds from you 7.800 EUR for CG Tax, as the final result of the tax is only 3.040 EUR, then, the Spanish administration must «refund» you the difference: 7.800-3.040 = 4.760 EUR.

How to claim for this refund? Your lawyer/tax adviser has to include this fact on the same Capital Gains Declaration, to present to the Tax office after completion of the sale.

4.- Accrual

The tax will accrue:

– In the case of returns, when they are due or on the date of collection if this is earlier.

– In the case of capital gains, when the property alteration takes place.

– In the case of imputed income corresponding to urban real estate, on December 31 of each year.

– In the remaining cases, when the corresponding income is due.

– In the event of the taxpayer’s death, all income pending imputation shall be deemed payable on the date of death.

5.-  Formal obligations

  • Taxpayers who obtain income in Spanish territory without the mediation of a permanent establishment will be obliged to present a declaration, determining and entering the corresponding tax debt for this tax within a period of one month from the accrual date. In the case of imputed income corresponding to urban real estate for own use, the return will be presented from January 1 to June 30 following the accrual date.
  • The joint and several liable parties may also make the declaration and deposit of the debt. Taxpayers for this tax will not be required to present the declaration corresponding to the income with respect to which withholding or income on account had been made, nor with respect to those subject to withholding or income on account but exempt.
  • Taxpayers who obtain income from economic activities or exploitations carried out in Spain will be obliged to keep records of income and expenses.
  • Likewise, they must keep, numbered in order of dates, the invoices issued and the invoices or supporting documents received.
  • They are obliged to make withholdings and payments on account with respect to the work income they satisfy, as well as other income subject to withholding that constitutes.

BUYING IN SPAIN AS COMPANY – INCOMES FROM SPANISH REAL ESTATES BY COMPANIES

Again, as the case of individuals, there are important differences in Tax treatment when the buyer of the Spanish property or the receiver of incomes is a Spanish or a foreign company.

a) ACTING IN SPAIN IN REAL ESTATE USING A FOREIGN COMPANY – Incomes obtained without the mediation of a permanent establishment

a.1)  Taxes on the acquisition of the property

a.2)  Tax on incomes – No subject to Corporate Tax but to INCOME TAX FOR NON RESIDENTS (IRPFNR)

a.3)  Taxes on the sale  – CAPITAL GAINS

 

a.1)  Taxes on the acquisition of the property:

No difference with individuals.

– ACQUISITON OF NEW BUILDNGS, PLOTS AND COMPANY-OWNED PROPERTIES:

– VAT on the acquisition of properties cannot be deducted.

– The rest of the expenses of acquisition such as notary fees, land registry fees, solicitors, structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

ACQUISITION OF RESALES:

– Transfer Tax and the rest of the expenses of acquisition such as notary fees, land registry fees, solicitors, structural reforms (only structural) can be deducted as per Capital Gains in case of sale.

a.2)  Tax on incomes – No subject to Corporate Tax but to INCOME TAX FOR NON RESIDENTS (IRPFNR)

Taxpayers, companies and/or individuals who operate without a permanent establishment, whether they are natural or legal persons, are taxed in accordance with the IRPF (Spanish Income Tax – Capital Gains  Tax) regulations, and do so for each transaction, as established in articles 24 and following of the Consolidated Text of the IRNR Law.

So, even being a company, foreign companies acting in Spain without permanent establishment will not be subject to the Spanish Corporate Tax, but to the same Tax Law as per non resident individuals: Income Tax.

1.- Tax base

 a) General rule:In general, the tax base will be made up of its full amount, determined in accordance with the rules of personal income tax for individuals.

b) Incomes received from Spanish properties / Real Estates:

1.- Income Tax:  Foreign companies which own properties in Spain are always obliged to submit annual income tax returns (IRPF) every year, and include their properties in said returns, and this both in the event that the taxpayer company is a tax resident in Spain or not.

In the case of companies NON tax residents, properties and rents must be included in the annual income tax return, but,  as opposite of the INDIVIDUALS,  in case of no incomes, the “minimum tax” will not be derived.

As the property is NOT a permanence residence, then, it is taxed as it is no exempt from the tax (as opposite of the case of Spanish Tax Residents).

2.- Calculation of the Tax – Just rents – No Imputation Income  

1.- In case the properties have generated incomes (rents, etc). they must be  added to the rest of incomes obtained in Spain by the taxpayer during the whole fiscal year.

In case of incomes coming from RENT, it is very important to know that, as difference with the case of “Residents”, there is NO REDUCTION of the 60 % of the net profit as base of the tax.

2.- NO IMPUTATION INCOME in case of foreign companies: As stated above,  in the case of the “Individuals”, in the event that properties were generating no incomes during the year, they still have to be declared for tax, and they pay a “minimum” tax known as “Imputation of Income”.

But, this is not the case when the owner of the property is a “foreign company”. So, being a non resident company, there will not be any “imputed tax” to pay in case the property has not generated any incomes during the year.

The Spanish systems presents numerous tax benefits for incomes derived from rents.

2.- Expenses and reductions in case of renting:

As explained above, a 60% reduction is NOT applied to that amount for NON Spanish residents

The corresponding income tax bracket will already be applied to the result (which depends on the annual salary received by the taxpayer and which increases according to income).

These are the reductions accepted by the tax law:

  • Mortgage interests
  • Repairs and maintenance costs of the property
  • IBI-Council Tax, fees and other local taxes
  • Community fees and other common expenses
  • Amortization of the house and real estate (3 % as per Income Tax)

o As difference of individuals, TAX ADVISER fees and expenses to deal with the rent can be deducted in case of the tax payer is company.

Also, as the case of individuals, there is an important difference between companies EU nationals and companies NON EU nationals about the reductions of the Tax base of the Income Tax in Spain.

– Companies EU nationals: When the tax payer is a resident in any of the EU countries, they can reduce from the base of the tax ALL the expenses derived from the activity who has generated the income/rent.

For example, in case of rent, it can be deducted expenses of maintenance, local taxes, cleaning, repairs, etc-

– Companies NON EU Nationals cannot deduct from the tax base the above expenses generated to produce the rent. So, the tax base will be the exact amount of the rent obtained yearly in Spain with no reductions.

3.- Tax Rate:

The incomes/rents obtained from the property during the year are submitted to the following tax rate:

 

EU NATIONALS, Iceland and Norway

 

NON EU NATIONALS

 

19 %

 

 

24 %

  • Special rules for incomes obtained from other sources different than rent:

In the cases of provision of services, technical assistance, installation or assembly works derived from engineering contracts and, in general, from activities or economic operations carried out in Spain without the mediation of a permanent establishment, the taxable base will be equal to the difference between the full income and the following expenses:

– Salaries and social charges of the personnel employed directly in the development of the activity provided that the income of the applicable tax or the payments on account of the paid work income is justified or guaranteed.

– Provision of materials for their definitive incorporation to the works carried out in Spanish territory.

– Supplies consumed in Spanish territory for the development of activities.

The tax base corresponding to capital gains will be determined by applying, to each capital alteration that occurs, the rules provided for personal income tax, with certain exceptions.

– In the case of non-resident entities, when the capital gain comes from a non-lucrative  acquisition (donation for example), that amount will be valuated at the “normal market” value of the item acquired.

– When the earnings come indirectly from assets located in Spanish territory,  or from rights related to them, and the entities are considered as “merely holder of assets”, and they are resident in countries or territories with which there is no effective exchange of tax information, those real estates located in Spanish territory will be subject to the payment of the tax.

– Work income received by non-resident individuals in Spanish territory by virtue of a fixed-term contract for seasonal workers, in accordance with the provisions of labor regulations:  2%.

–  Dividends and other income derived from the participation in equity of an entity, and Interest and other income obtained from the transfer of own capital to third parties: 19 %

4.- Accrual

The tax will accrue:

– In the case of returns, when they are due or on the date of collection if this is earlier.

– In the case of capital gains, when the property alteration takes place.

– In the case of imputed income corresponding to urban real estate, on December 31 of each year.

– In the remaining cases, when the corresponding income is due.

– In the event of the taxpayer’s death, all income pending imputation shall be deemed payable on the date of death.

5.-  Formal obligations

  • Taxpayers who obtain income in Spanish territory without the mediation of a permanent establishment will be obliged to present a declaration, determining and entering the corresponding tax debt for this tax within a period of one month from the accrual date. In the case of imputed income corresponding to urban real estate for own use, the return will be presented from January 1 to June 30 following the accrual date.
  • The joint and several liable parties may also make the declaration and deposit of the debt. Taxpayers for this tax will not be required to present the declaration corresponding to the income with respect to which withholding or income on account had been made, nor with respect to those subject to withholding or income on account but exempt.
  • Taxpayers who obtain income from economic activities or exploitations carried out in Spain will be obliged to keep records of income and expenses.
  • Likewise, they must keep, numbered in order of dates, the invoices issued and the invoices or supporting documents received.
  • They are obliged to make withholdings and payments on account with respect to the work income they satisfy, as well as other income subject to withholding that constitutes.

VERY IMPORTANT: 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.

It is very common to buyers to buy a property in Spain in the name of a foreign company with the aim to be used personally by the members of the family of the shareholder. This is not correct. The property belongs to the “Company”. So, in case the use of the property is done by the shareholder for “personal reasons”, then, a renting contract must be agreed with the company, with a marked-value rent, and the incomes generated by that rent must be taxed by the Spanish Income Tax as the rest of the rents obtained during the year.

a.3)  Taxes on the sale  – CAPITAL GAINS

The sale of Spanish properties owned by foreign companies is taxed in the same manner as per Non resident Individuals.

b) ACTING IN SPAIN IN REAL ESTATE THROUGH PERMANENT ESTABLISHMENT Incomes obtained with the mediation of a permanent establishment

A non-resident individual or company acts in Spain through a “permanent establishment” in the following cases:

– When it has in Spain, by any title and continuously or regularly, facilities or workplaces of any kind, in which all or part of the activity is developed.

– When they are acting in Spain through an authorized agent, who  contracts in the name and on behalf of the non-resident entity, provided that he regularly exercises said faculties.

Specifically, permanent establishments are management headquarters, branches, offices, factories, workshops, warehouses, shops or other establishments like mines, oil or gas wells, quarries, agricultural holdings, forestry or livestock or any other place of exploitation or extraction of natural resources and construction. Also,  installation or assembly works whose duration exceeds six months.

EXAMPLE:  An foreign resident entity owns some land destined to a mine  in Spain.

 1.-  Tax base

The Base of the Tax of the permanent establishment will be determined in accordance with the provisions of the General Corporate Tax Regime, without prejudice to the following:

  1. Every payment that the permanent establishment makes to the head office,  or to any of its permanent establishments as fees, interests or commissions paid in consideration of technical assistance services,  or for the use or transfer of goods or rights will not be deductible.
  2. However, the interests paid by the permanent establishments of foreign banks to their headquarters or to other permanent establishments to carry out their activity will be deductible.
  3. The reasonable part of the management and general administrative expenses corresponding to the permanent establishment will be deductible, provided that the requirements established by law are met. Taxpayers may request the Tax Administration to determine the valuation of the aforementioned expenses that are deductible.
  4. In no case will amounts corresponding to the cost of the entity’s own capital (interest and other financial charges), directly or indirectly, be attributed to the permanent establishment.

2.-   Tax rate

  1. The tax rate of 30%will be applied to the tax base, except when the activity of the permanent establishment is that of research and exploitation of hydrocarbons, in which case the tax rate will be 35%.
  2.  A supplementary rate of 19 %will be required on the amounts transferred from the eventual incomes obtained in Spain by the permanent establishment, with he following exceptions

– Entities with tax residence in States of the European Union which are not considered as tax havens.

– Entities with tax residence in a State that has signed an agreement with Spain to avoid double taxation, provided that there is reciprocal treatment.

  1. In the full amount of the tax, the following may be applied:
  2. – The amount of the  benefits and deductions applied by the Spanish Corporation Tax Law to the Spanish residence companies.
  3. – The amount of the withholdings, and payments on account of the Tax.

3.-  Tax period and accrual

 – The tax period will coincide with the fiscal year declared by the permanent establishment, without exceeding 12 months. When no other has been declared, the tax period will be understood to refer to the calendar year. The tax will accrue on the last day of the tax period.

– The communication of the tax period must be formulated at the time the first declaration for this tax must be submitted, understanding that it remains for subsequent periods as long as it is not expressly modified.

– The tax period shall be understood to have concluded when the permanent establishment ceases its activity or, in another way, the reversal of the investment is made on its day with respect to the permanent establishment, as well as in the cases in which the permanent establishment is transferred. to another natural person or entity, those in which the central house transfers its residence and when its owner dies.

4.-  Formal obligations

 The permanent establishments will be obliged to present a declaration, determining and entering the corresponding tax rate, through the simplified model 200 or 201. The return will be presented within 25 calendar days following the six months after the end of the tax period.

The permanent establishments will be obliged to keep separate accounts, referring to the operations they carry out and the patrimonial elements that were attached to them.

They will also be obliged to comply with the remaining accounting, registration or formal obligations required of entities resident in Spanish territory by the corporate tax regulations.

5.-  Payments on account

Permanent establishments will be subject to the corporate tax withholding regime for the income they receive,  and will be obliged to make installment payments on account of the settlement of this tax, on the same terms as entities subject to Spanish Corporate Tax.

Likewise, they will be obliged to make withholdings and payments on account in the same.

c) TAX IMPLICATIONS WHEN BUYING A HOUSE THROUGH A SPANISH COMPANY

c.1)  Taxes on the acquisition of the property

c.2)  Tax on incomes – CORPORATE TAX

c.3)  Taxes on the sale  – CORPORATE TAX

 

c.1)  Taxes on the acquisition of the property

ACQUISITON OF NEW BUILDNGS, PLOTS AND OTHER COMPANY-OWNED PROPERTIES:

– VAT on the acquisition of properties can be deducted ONLY in the case of companies “with economical activity”.

– Patrimonial/Equity companies cannot deduct the VAT of the property acquisition.

– The rest of the expenses of acquisition such as notary fees, land registry fees, solicitors, EVERY KIND of  reforms (not only structural), and in general, any kind of expense related to the rental activity can be deducted as per Capital Gains in case of sale.

ACQUISITION OF RESALES:

– Transfer Tax and the rest of the expenses of acquisition such as notary fees, land registry fees, solicitors.

– EVERY KIND of  reforms (not only structural), and in general, any kind of expense related to the rental activity can be deducted as per Capital Gains in case of sale.

c.2)  Tax on incomes – CORPORATE TAX

The Corporate tax base is obtained through the company’s accounting results/balance. So, it is to this accounting balance that the tax rate will be applied.

1.-  QUOTE/RATE TYPES

It will be applied in the first tax period in which the tax base is positive (that is, there is a profit and we have to pay corporate tax) and in the next.

  • General quote/rate: 25%.
  • Reduced quote/rate of 15% for entrepreneurs. Recently created companies may apply this reduced rate for TWO YEARS (the year in which the activity begins and the following year) if they meet certain requirements:
    • That the economic activity of the company has not been carried out previously by other persons or related entities.
    • That the economic activity has not been carried out, during the year prior to the establishment of the entity, by a natural person who holds a participation, direct or indirect, in the capital or equity of the newly created entity greater than 50 percent.
    • Patrimonial companies are excluded from this reduced tax.
  • 20% reduced quote/rate for cooperatives:This quote/rate is applicable in tax-protected cooperative companies, except for extra-cooperative results, which are taxed at the general quote/rate of 25%.

2.- HOW IS THE TAX TO PAY CALCULATED?

The corporation tax is calculated from the accounting result in the fiscal year of the company, that is:

INCOMES – EXPENSES – DEDUCTIBLE EXPENSES

3.- COMPANIES WITH ECONOMICAL ACTIVITY AND PATRIMONIAL

There are two ways to buy properties in Spain through a Spanish company:

1.- COMPANIES WITH “ECONOMICAL ACTIVITY” – Those which have a business activity, so, the normal companies in business of services, production, factories, etc, which means that, the company, at least, has:

– An employee to develop the activity-  Note that the “Tax representative” or General Manager is not considered an employee for this purposes.

2.- COMPANIES WITHOUT “ECONOMICAL ACTIVITY”  – PATRIMONIAL/EQUITY COMPANY (in Spanish “Sociedades de mera tenencia de bienes” o “Sociedades Patrimoniales” – This is the typical case of companies with the “mere ownership of investment or financial products, shares, bonds, deposits, or real estate”. So, its nature is to have fiscal effects and not commercial ones.

THE CASE OF THE PATRIMONIAL/EQUITY COMPANIES

The most important thing is that more than 50% of the assets are not affected by economic activity. In other words, it is not intended to carry out an economic activity.

Therefore, it will not be a patrimonial entity if more than 50% of the assets are made up of the set of:

– tangible and intangible fixed assets (necessary to carry out the activity)

– the existences,

– trade debtors,  and those items receivable as a consequence of economic activity.

Although we must also consider as elements related to the activity, adding them to the previous items, the treasury and the investments that meet the certain requirements. Among them we can mention:

– those that are produced by legal mandate, derived from economic activity

Those derived from operations with the elements related to the activity, and those that, although not a consequence of the activity, have the objective of managing and controlling the participation of another non-equity company.

Anything not detailed in the previous items will be understood not to affect economic activity.

Importance of 50% of assets

If more than 50% of the assets of your company is destined to carry out activities, it will not be patrimonial.

In order to calculate the value of the assets the average of the quarterly balances must be taken into account (not the balance at the end of the year).

On the other hand, if it is a parent company of a group of companies, the average to be taken is that of the consolidated balance sheets.

What is understood by economic activity?

In order to  be considered an “economic activity”, at least one person employed with a full-time employment contract and it must be dedicated to managing the assets.

Creating a company without economical activity- Patrimonial is the most widely used way to those who decide to invest in real estate in Spain.

A very important point is that the sole activity of “renting” one or several properties is not considered as an “economical activity”, if there is not an existing independent office to deal with the business, and an employee contracted in full time basis.

– 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 %.

It is very common to buyers to buy a property in Spain in the name of a foreign company with the aim to be used personally by the members of the family of the shareholder. This is not correct. The property belongs to the “Company”. So, in case the use of the property is done by the shareholder for “personal reasons”, then, a renting contract must be agreed with the company, with a marked-value rent, and the incomes generated by that rent must be taxed by the Spanish Corporate Tax as the rest of the rent obtained during the year.

– How is a patrimonial/equity company constituted?

As we have been pointing out, the patrimonial society is a consideration of the entity itself. And this consideration is given by the composition of its assets.

So what can be constituted is a normal and standard SL or SA civil or commercial company, which will be considered patrimonial when it is limited to managing assets or rights without engaging primarily in professional activities.

* Special regime for entities dedicated to the rental of properties

This regime is optional and will apply to entities whose main economic activity is the leasing of properties located in the Spanish territory, although it is compatible with the performance of other complementary activities,  and with the transfer of the leased properties once the minimum period of maintenance is passed.

In order to apply this special regime, companies must meet the following requirements:

  • The number of properties rented or offered for lease is equal to or greater than 8 at any time.
  • Dwellings remain leased or offered for lease for at least three years. Failure to comply with this requirement will imply for each property the loss of the corresponding bonus.
  • Real estate development and leasing activities are subject to separate accounting for each property acquired or promoted.
  • In the case of developing complementary activities to the main economic activity of housing rental, that:

 – at least 55% from the income of the tax period, excluding those derived from the transfer of the leased properties once the minimum maintenance period has elapsed, or, alternatively,  the value of the entity’s assets is capable of generating income that is entitled to get the bonus.

The Tax Law foresees an 85% discount to be applied on the part of the full quota that corresponds to the income derived from the rental of houses. These incomes will be calculated by subtracting from the full income obtained, the deductible expenses related to said income, and the general expenses that correspond proportionally to the referred income.

* SPECIAL TAX FOR INCOMES GENERATED BY COMPANIES OR INDIVIDUALS BASED IN A HEAVEN COUNTRY

Exclusively entities residing in a country or territory that is considered a tax haven that are owners or possess in Spain, by any title, real estate or real rights of enjoyment or enjoyment over them, are subject to a special tax.

The tax base is constituted by the cadastral value and,  if this does not exist, the value determined in accordance with the provisions of the Wealth Tax will be used.

The tax rate will be 3% and it must be paid every year.

TLACORP 2021