Buying with a company: what about capital gains tax?

In Spain, there is a wealth tax. In order to avoid this tax, we are regularly asked whether the company can acquire the property in Spain. This article will explain how wealth tax is viewed in the case of a company.

In principle, wealth tax applies to natural persons, including non-residents with property in Spain. For these non-residents, there is an exemption of 700,000 euros. Once you exceed this threshold, rates will apply from 0.20% to 2,50%.

Update December 2020: the highest rate will be raised to 3.50% for net assets above €10 million nationally from 2021.

Read more about wealth tax in Spain for residents and non-residents.

I have a Spanish company

As mentioned above, wealth tax is only there for individuals. Shares or participations in a company count to your personal assets, however.

In certain cases, shares or participations in companies with an economic activity (not a patrimony company) can be exempted. For example, there is a condition that you, as director or manager, derive your main source of income from the company. If there is a rental activity, among other things, there must be at least one full-time employee.

Merely setting up or using a Spanish company to maintain a second residence is therefore not eligible for the exemption. 

I have a Belgian company

It is a question of fact whether wealth tax applies to applies to a non-resident shareholder of a Belgian company whose business assets consist mainly (typically >50%) consists of real estate in Spain.

On the one hand, wealth tax may not apply if the Belgian company is not subject to Spanish company law. On the other hand, the Spanish tax authorities may argue that there is a fiction because there is no economic motive to acquire the Spanish property through this company.

This should be considered on a case-by-case basis.

Valuation of property

Before an estate tax can be levied, there must be clarity about the size of assets. You should therefore annually value the assets and liabilities in your estate.

Real estate in full ownership owned by natural persons is valued according to the highest value of the following valuations: the value in the deed, the minimum taxable value Or the cadastral value. 

The valuation of the company is then done on the basis of the (properly kept) accounts under the IRPF rules. This is irrespective of whether the shares or units qualify for an exemption.

However, real estate owned by companies is valued as in the case of natural persons, unless the professional activity consists of dealing in or developing real estate.

So in most situations, the value of purchase deed applies.

What about debts?

In principle, debts are deductible provided (1) they are duly justified and (2) in the case of non-residents, there is a link to Spain. For example, consider a mortgage loan. Interest, guarantees and debts linked to exempt assets are not deductible.

The valuation of the debt is then done based on the nominal value at the time of the taxable moment.

Net assets and tax base

Finally, one then arrives at net assets. This consists of all non-exempt assets minus deductible debts. On top of this, there are the exemptions of the autonomous regions. As a non-resident, there is the €700,000 exemption.

An example: your company's property in Spain has a value of 3,000,000 euros. You have a mortgage with a nominal value of 1,000,000 euros. The net assets are then 2,000,000 euros. As a non-resident, there is an exemption on the first 700,000 euros. The taxable base is then 1,300,000 euros. To this, the rates are applied

A non-resident may also opt for the regime of the autonomous region in which his assets are located. In certain cases, it is more interesting to opt for the regime of the autonomous region.

Decision: wealth tax at a company

If you decide to buy property with your company, you may personally come into contact with wealth tax in Spain. Although wealth tax is only there for individuals, the Spanish tax authorities have a number of tools to tax your personal assets in Spain through your company.

Read more about buying Spanish property through a partnership.

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