For tax or financing purposes, people sometimes buy Spanish property through a company. But what if you take over shares in a Spanish company with real estate? In other words, instead of buying the property directly, you take over the company. This article will give you more information on transfer taxes on shares.
Share transaction: in principle no registration duties or VAT
The purchase or sale of shares in a Spanish company is exempt from registration duty (ITP) or VAT. However, if the company owns real estate located in Spain, there are two exceptions.
Exception 1: patrimony companies
The first exception relates to patrimony companies. Thus, as the buyer, you do pay registration duties or VAT if you:
- directly or indirectly acquires more than 50% of the shares in a Spanish company;
- and real estate in Spain represents more than 50% of this company's assets;
- and this property is not operated for an economic activity.
Mere renting is not considered an economic activity in Spain. Whether the company has an economic activity is a question of fact.
Example 1. You buy the shares of a Spanish company. The assets of this company consist of one villa. This villa is used by the manager to stay in Spain on a regular basis. In addition, the villa is occasionally rented out via Airbnb. In this case, you will pay registration duties on the value of the property. After all, the rentals are not considered an economic activity.
Example 2. You buy the shares of a Spanish company with various properties. The company regularly rents out the properties through online rental channels, estate agents and its own staff. As there is an economic activity here, namely property management, you do not pay registration duties on the share transfer. In case there is no own personnel, you can still prove the economic activity by the regularity of the rentals. Indeed, the Spanish tax authorities must prove that you purchase the shares for the sole purpose of avoiding registration duties.
The valuation is done on the basis of the minimum tax value of the property.
Exception 2: contribution of property to a company
The second exception concerns a prior contribution of the property to a company. If the property was contributed to a company without demonstrable economic activity within the 3 years prior to the sale of the shares, the Spanish tax authorities will assume that the sole purpose of this contribution was to avoid taxes. In this respect, the number of shares does not play a role. Even if you acquire less than 50% of the shares, you will then have to pay transfer taxes.
Note: more complexity
Taking over a foreign company is not something you do lightly. It is strongly recommended that you due diligence on the company before you take over the shares. For example, there may be hidden (taxable) capital gains or the company has some onerous contractual obligations. In addition, the legal controls on the property to happen. Confianz can assist you with both points.
If you intend to take over a company because of its professional activities, no registration duties or VAT are payable on the share transfer. If you take over a company with no demonstrable activity, you will have to pay registration duties or VAT on the value of the property on the share transfer.