While the vast majority of Spanish property purchases are made by private individuals, a small percentage (between 10 and 15%) take place through a company. This option of buying real estate offers tax savings along with other advantages. However, buying Spanish property through a company also comes with certain drawbacks.
In this article, we list the pros and cons of purchasing in the name of a company. Generally, the advantages only benefit large companies with significant assets and properties managed through asset-based companies.
Advantages of buying Spanish property through a company
The main benefits of this purchase option involve savings on taxes.
VAT deduction on new properties
Buying a new property in Spain involves paying 10% VAT (IVA in Spanish) on the purchase, applied whether the buyer is an individual or a company. However, if the buyer is a company, there is the possibility of deducting the VAT payment from the company’s overall VAT liability. This option is not available if you’re a private buyer.
Tax advantages for rental properties
If you’re buying real estate through a company with the view to letting the property, you may benefit from fiscal advantages. However, in order to do so, the company must own a minimum of at least eight properties, all of which must have long-term rental contracts, valid for at least three years.
If your company meets this requirement, it may qualify for up to an 85% deduction in rental income. In addition, there is the possibility of deducting community fees and council tax (IBI in Spanish) in their entirety. None of these deductions is available to private buyers.
Read our free guide to buying property in Spain
Disadvantages of buying Spanish property through a company
As we’ve seen above, purchasing real estate in Spain through a company can lead to significant tax savings. However, there are also drawbacks to buying through a company rather than as a private individual. They include:
Rental income tax if used as a home
If the property bought through the company is for your principal or second home, the company must bill you for rent at market rates. This rental income attracts tax at the ratio f 25%. You must also apply VAT and taxes such as transfer tax (ITP in Spanish).
Find out about the buying process in Spain
Dividends to declare
When you buy a buy-to-let property through a company, Spanish fiscal law considers that all rental income is profit for the company. If you wish to benefit from this profit, you must declare it in the form of dividends shared out from the company.
Legal security
A company generally has more than one shareholder (at least two usually) and by extension, the property bought through the company has multiple owners. In this scenario, you have less control over the property than you would if you had bought it as a private owner.
In conclusion
Unless you plan to purchase a large number of assets in Spain, we advise you buy the property as an individual. That said, any purchase through any vehicle requires professional legal advice from a lawyer representing your interests.
At Costaluz Lawyers, we are more than happy to provide this advice to ensure you buy in the way that best benefits you. Get in touch with our team for a free consultation now.
Maria Luisa Castro
Hello
Mar’ia iam considering purchase of a 18 million euros home for my use. I have a Nevis LLC. Is it possible to use this LLC for a cost advantage. What are the disadvantage verses a purchase in my personal name. Which has the cost advantage 🤔 thank you.
Charliedee787@gmail.com
Dear Charlie,
Thank you for contacting us. This is Ana Landa from Costaluz Lawyers. It is a pleasure talking to you.
Please be informed that if you buy a property in Spain, in general terms, the most important tax that you will pay is the transfer tax or VAT depending on the seller and if this is a new property or not.
In Andalusia Community, the rate of the transfer tax is 7%, so it is important to know also the place of the property, who is the seller, or is it a new property.
We can offer to study your case with your real situation and give you a proper answer about all the taxes of the purchase and the best option to buy a property in Spain by reducing taxes within the framework of Spanish tax legislation. We will be pleased to offer you our tailored consultancy, which is a tax legal report.
Therefore, if you like, you can send us all your questions you would like us to answer you and we will send you a quote.
At your disposal for any further clarification.