To avoid Spanish wealth tax, many buyers choose to buy through a company. However, the Spanish tax authorities see through these structures: the value of the shares is included in the shareholder's personal assets. As a result, as a natural person, you often do not escape the tax burden unless there is active economic exploitation.
Read more about wealth tax in Spain for residents and non-residents.
How does Spanish wealth tax (Impuesto on el Patrimonio)?
In Spain, wealth tax is a personal tax that applies directly to individuals. Non-residents who own property enjoy a national exemption of €700,000. Above this threshold amount, rates vary progressively from 0.20% to 3.50% (for net assets above €10 million). In addition, regions have their own rules that are usually more advantageous.
"Many investors mistakenly believe that a company is a 'tax shield'. In practice, the company often acts merely as a vehicle where the underlying value of the property is attributed directly to the shareholder," said experts at Confianz.
Important tariffs and updates
Since 2021, the maximum national rate has been increased to 3,50%. It is crucial to understand that although the company itself does not pay wealth tax, the shareholder as natural person taxed on the value of its holdings.
Real estate through a Spanish Company (SL)
Establishing a Spanish Sociedad Limitada (SL) is not an automatic exemption from wealth tax. The shares of this company are an integral part of your global assets.
When is an exemption possible?
An exemption is only feasible if the company has a actual economic activity exercise. This means:
- No patrimony company: The company should not serve only to hold real estate.
- Director role: As the manager, you need to get your main information of income from this company.
- Rental activity: For rentals, the tax authorities impose strict requirements, such as hiring at least one full-time employee with an official employment contract.
Conclusion: Using a company for mere second residence does not protect against the Impuesto sobre el Patrimonio.
Read more about buying Spanish property through a partnership.
Real estate through a Belgian or Dutch company
Whether a foreign company (such as a Belgian BV) is liable to wealth tax depends on the composition of its assets.
If the business assets of a Belgian company for over 50% from Spanish real estate exists, the Spanish tax authorities can tax the shareholder. Although the company is not subject to Spanish law, the tax authorities often apply a fiction argument add: if there is no legitimate economic motive for the structure, the property is considered to be directly personal property.
Valuation of Property and Shares
The taxable base is determined by the highest value of the following three parameters:
- The value stated in the purchase deed.
- The cadastral value (valor catastral).
- The minimum taxable value (valor de referencia).
In the case of a company, the value of shares is based on adjusted accounting under IRPF rules. In most practical situations, this amounts to the market value of the property minus outstanding debt.
Deductibility of debts
Debt can reduce the tax base, provided it meets two conditions:
- Evidentiality: The debt must be properly documented (e.g. a notarised loan).
- Territoriality: For non-residents, the debt must have a direct link to the Spanish asset, such as a mortgage credit for the purchase of the property.
Note: Interest and debt linked to already exempt assets are never deductible.
Case study: The calculation
Suppose a non-resident owns, through a company, a villa in Calpe worth €3.000.000. It has a mortgage of €1.000.000. The villa is the sole asset of this company.
- Net power: €2.000.000
- Valencian exemption: €1.000.000
- Taxable base: €1.000.000
The progressive rates of the respective autonomous region are applied to this €1 million.
Frequently asked questions about Wealth Tax
1. Is it more fiscally advantageous to buy Spanish property privately or through a company? It depends on your purpose. For own use, a partnership often offers no capital gains tax advantage and entails additional administrative costs. For commercial rentals with staff, however, a partnership may offer tax advantages.
2. Can I get the €700,000 exemption even if I buy through a company? Yes, the exemption applies to you as a natural person (the shareholder). If you and two partners each own 50% of the shares, each enjoys the personal exemption of €700,000 on his/her share.
3. What is the 'tax reference value' and why is it important? Since 2022, the valor de referencia often the minimum basis for taxes in Spain.
4. Does every region in Spain have the same wealth tax? No, autonomous regions such as Madrid or Andalusia often have their own discounts or exemptions (up to 100%). Non-residents have for several years been allowed to choose between the national regime or the regime of the region where the property is located.
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.
