Confianz regularly receives questions about investing in Spanish property with a partnership. In this post, we will provide you with a frame of reference for choosing between buying as a private individual or with a company, based on three considerations.
Consideration 1. What is your objective?
First of all, why do you wish to invest in Spain? Are you going to use the property as a second residence? Or are you considering it as an investment project?
You will have the property mainly use it yourself, e.g. as a second residence. You will only occasionally rent to friends or family. In that case, you are better off buying privately. Both in Spain and in Belgium, taxation is then more favourable. Not only is personal income tax lower, but you will not have a taxable benefit of any kind.
Or you view the Spanish property as investment property and you aim to maximise occupancy. In Spain, there is no major difference between a non-resident individual and a non-resident company for rental income tax purposes.
Depending on your personal situation, though, there may be a significant difference between the taxability of rental income in Belgium. An example. As a natural person in Belgium, foreign rental income is not taxed. But this income does count towards the calculation of the progressive personal income tax rate. In other words, Spanish rental income may result in a higher assessment in Belgium.
While in corporate tax, rental income is exempted. And you may be able to invoke, for example, staggered valuation of already realised capital gains.
Note: if you are going to rent out Spanish property to tourists, you will need a rental licence. These rules vary by autonomous region.
Consideration 2. By what means will you finance the purchase?
Did you sufficient private funds To finance the purchase? Sufficient equity makes a private purchase more interesting.
Do you have the necessary funds in a company? In that case, we will first look at the extent to which you can distribute the funds from the company on a tax-efficient basis. If this cost over time exceeds the tax on the benefit in kind, a purchase through the company seems appropriate.
Are you going to appeal external financing? In that case, repayment capacity and guarantees come into play. Companies can usually borrow more easily. To finance luxury property, you can also work through private banking or an international mortgage loan. However, an international mortgage can only be done through a company.
Consideration 3. What is the purchase price?
On the one hand, the higher the purchase price, the higher the possible benefit in kind if you buy with a company. With luxury properties, this benefit in kind can add up considerably. With an average transaction value (for Spain), the benefit in kind is usually not too bad.
On the other hand: the higher the purchase price, the more likely you are to get Spanish wealth tax pays. In Spain, the first 700,000 euros per non-resident is exempt from wealth tax. After that, rates of 0.20% - 2.50% apply. Shares in (patrimony) companies are usually exempt assets for Spanish wealth tax. But this too needs to be studied.
Update December 2020: the highest rate will be raised to 3.50% for net assets above €10 million nationally from 2021.
In luxury real estate, a Thoughtful planning of procurement methods thus appropriate.
The above considerations assume that your tax residence is in Belgium. If you are emigrating to Spain, we have a completely different frame of reference. This is because all your worldwide income and assets are then fundamentally taxable under Spanish law.
Do you have any questions about investing in Spanish real estate with a company? If so, please feel free to contact on.