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.
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).
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.
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.
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.