Wealth tax and tax on large fortunes liabilities for non-resident shareholders with properties in Spain

Property taxes

Recent legal changes affecting both the Wealth Tax and Tax on Large Fortunes in Spain could have consequences for non-resident shareholders with properties in the country.

The tax obligations of such people depend on various factors. Here, we explore the details.

Shares in Spanish real estate

The introduction of Law 38/2022 now means that non-resident shareholders with properties in Spain have to pay Wealth Tax and the Temporary Solidarity Tax in certain circumstances.

As a result of these changes, shares representing participation in any entity’s equity, not traded on organised markets, are considered to be located in Spain if at least 50 per cent of the entity’s assets, directly or indirectly, consist of real estate in Spanish territory.

The aim of these changes is to prevent non-resident individuals from avoiding Wealth Tax by using non-resident companies to hold properties in Spain. Previously, such arrangements allowed individuals to be exempt from Wealth Tax. However, with the new modifications, these individuals may be subject to Wealth Tax and the Temporary Solidarity Tax on Large Fortunes.

How does the tax liability apply?

In such cases, the tax liability depends on the specific circumstances. For example, in a recent consultation (V0107-23, February 1, 2022), a German tax resident who owns 25% of a German limited partnership investing in Spanish real estate was found to be subject to Wealth Tax.

That’s because the property constituted at least 50 per cent of the partnership’s assets, meaning both the shareholder and other partners had to pay Wealth Tax.

The same also applies to the Temporary Solidarity Tax on Large Fortunes (Impuesto Temporal de Solidaridad de las Grandes Fortunas). The regulations for this tax refer to those of Wealth Tax for determining taxable assets and their valuation.

What about double taxation?

For the avoidance of double taxation, liabilities for these two taxes may be influenced by international conventions.

The application of these conventions varies depending on the country of tax residence. For example:

  • Conventions that include provisions allowing Spain to tax holdings in companies with real estate components, such as Germany, France, Panama, or the United Kingdom, among others.
  • Conventions that only permit taxation of direct ownership of real estate, such as Switzerland or Argentina.

However, in the absence of international conventions or provisions for specific tax scenarios, Spain applies its domestic regulations without limitations.

For non-residents from countries without applicable conventions, such as the United States, Mexico, or Portugal, Spain will tax them based on its internal laws.

Get in touch for personalised tax advice

To explore the implications further or to seek personalised advice, get in touch with CostaLuz Lawyers now and enquire about our tax services.

Our expert team can provide detailed insights based on your specific circumstances.

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