Buying Spanish property through a partnership: tax trap or smart move?

Should you buy Spanish property privately or through a company? The short answer: For purely private use, buying through a company (both Spanish and Belgian) is usually tax disadvantageous because of the tax on benefit in kind (SG&A) and the loss of favourable regimes for individuals. However, it is rather interesting when you have to finance the purchase with gross reserves from your Belgian company (to defer dividend tax) or when there is a commercial operation (rental activity).

In this article, we analyse the tax impact for both residents in Spain and second residence investors.

Also listen to our podcast episode 'Buy privately or through the company? The right choice for your Spanish property'. Go to  Youtube, Spotify or Apple Podcasts.

1. You are living or emigrating to Spain: The impact on your assets

Target: Residents and emigrants

Direct response: As a Spanish resident, holding your own home in a company is usually inadvisable. You will lose crucial exemptions in wealth and capital gains tax and be taxed on a notional rental income.

The loss of tax concession regimes

When you emigrate, Spain becomes competent to tax your worldwide income. As a natural person, you enjoy significant exemptions in Spain.

• Wealth tax: In many regions, owner-occupied housing is (partially) exempt.

• Capital gains tax: If you sell your own home, you can enjoy an exemption on the capital gain under certain conditions (e.g. reinvestment or 65+ scheme).

• Inheritance tax: Regional reductions for the family home.

Do you own the property through a partnership? If so, these benefits will lapse. This is because a partnership does not have a "family home".

The trap of market renting

If you live in a property owned by your company, the Spanish tax authorities require you to provide a market rent paid to your own company.

This leads to a double tax burden:

1. Corporate tax: The company pays tax on the rental income received.

2. Personal income tax: You pay tax on the funds (dividends/wages) you take out of the company to pay that rent.

2. A second residence in Spain: Spanish SL or Belgian BV?

Target: Investors and entrepreneurs

Direct response: A Spanish SL is only useful in professional commercial activities (e.g. property development or large-scale rentals). A Belgian company is mainly interesting as a financing tool, not because of Spanish tax benefits.

Option A: Set up a Spanish company (SL)

A Sociedad Limitada (SL) is interesting if the purchase is part of a economic activity. Merely renting out property is not considered an economic activity. Only when you employ a full-time employee to manage the property portfolio can it be considered an economic activity.

• Advantage: Full cost deduction and VAT recovery in case of professional operation.

• Disadvantage: With (partial) private use, deductibility is drastically reduced. The fixed costs of bookkeeping and administration of an SL often do not outweigh the tax benefit of merely having one property.

Conclusion: Do not set up SL purely for tax optimisation of a holiday home; management costs and tax rules regarding private use erode the benefit.

Read more about setting up a Spanish company.

Option B: Buy with your Belgian company

From a Spanish tax perspective, a Belgian company is treated as a non-resident.

• Tax: The company is taxed on income (or notional rental value) in Spain.

• Cost deduction: Very limited for non-residents, even on sale.

• Rent commitment: Again, as a business owner, you must pay a market rent or be taxed on an Advantage of All Nature (VAA).

Read more about the steps to buy a property in Spain with a Belgian company.

So why buy through Belgian BV anyway? The only valid reason is financing (Cash-Flow). If your capital is tied up in your Belgian company, you can buy directly with these gross reserves. If you do not, you must first pay a dividend (taxed at 30% withholding tax in Belgium) and then buy privately.

• Liquidity advantage: You defer private tax.

• Leverage: You can buy more property with the same gross capital.

Read more about capital gains tax with a company.

3. Belgian taxation: The rules since 2020

Target: Accounting processing

Direct response: Income from Spanish property is exempt in Belgian corporate tax (double taxation treaty), but losses are hardly deductible since 2020.

Exemption and Losses

According to the Belgium-Spain double taxation agreement Spain is authorised to tax the property.

• Profit: Income from the Spanish property is exempt in Belgian corporate tax.

• Loss: Since the corporate tax reform (income year 2020), foreign losses are no longer deductible, unless the loss is "final".

  • Final loss: This is only the case when the foreign branch is closed (read: the sale of the property). Ongoing costs (maintenance, electricity) not covered by rental income are therefore lost for tax purposes in Belgium.

Benefit of All Nature (VAA)

If you use the property personally, you must declare a VAA in your Belgian personal income tax.

• Calculation: This is calculated on the basis of the actual rental value of the Spanish property (not the Belgian cadastral income).

• Risk: The Belgian tax authorities strictly check whether this SG&A is in line with the market. Too low a VAA can lead to rectifications.

4. Exit strategy: selling shares and the "Real Estate Clause"

A common misconception is that selling the shares of the Belgian company will avoid Spanish tax. However, Spain applies the "Real Estate Rich Company" clause. If more than 50% of your company's assets consist of Spanish property, Spain may capital gains tax levy on the sale of shares, as if the property itself was sold.

Are you considering buying a second residence in Spain with your company? Here is a practical framework. 

FAQ: Frequently asked questions about real estate partnerships

Is it fiscally advantageous to buy a second residence in Spain through my limited company? No, purely tax-wise, it is usually not more advantageous because of tax on the Benefit in Kind and limited cost deductions. However, it is interesting for liquidity reasons: you do not have to pay dividends (and 30% tax) to finance the purchase.

Can I deduct the cost of my Spanish house in my Belgian company? Since 2020, costs and losses of a foreign property are generally no longer deductible in Belgian corporate income tax, except in case of final cessation (sale). In Spain, the cost deduction for private use is nil.

Do I pay double tax if I buy a house in Spain through a company? Not directly on income (due to the double taxation treaty), but there is an economic double burden: the company pays tax in Spain and you pay private tax on the Benefit of All Nature in Belgium for the use of the property.

What is the difference between a Spanish SL and a Belgian BV for real estate? A Spanish SL is more suitable for commercial activities in Spain (project development). A Belgian BV is used to invest existing Belgian business reserves without first distributing them privately.

About the author

Glenn Janssens is a lawyer specialising in Spanish real estate transactions and tax regulations. Since 2017, he has been helping Belgian and Dutch individuals and entrepreneurs to safely purchase and structure real estate in Spain. He guides files from A to Z: from due diligence, ownership and tax control to estate planning and optimisation for residents and non-residents. Thanks to his years of experience, hundreds of handled files and focus on transparent communication, Glenn makes complex Spanish legislation understandable and practically applicable for every property buyer.