Explained – Buying a Property in Spain in Your Own Name or through a Company
Should I buy a Spanish property in my own name or in the name of a company?
We get asked this question quite a lot and essentially there is no correct answer as much depends on the personal circumstances of the buyers and the intended use of the property. Below we explain the pros and cons and what to consider.
Do you intend to move to Spain to live or retire or use the Spanish property for personal use only?
If so, then, generally it is advisable to buy the property in your own names. If the property becomes your main residence and you are tax resident here, then on the sale of the property you will have certain tax advantages as a Spanish tax resident.
Do you have funds in your own Limited company and wish to invest in a Spanish property to rent out?
If you have monies in your own limited company and intend to buy a Spanish property to rent out, then it is worth considering buying the property in the name of a Spanish company.
Why?
Mainly if you own a Spanish property as a Non EU resident or with a Non EU Company and you rent it out, you will be taxed in Spain on the rental income at the rate of 24%. In addition, none of the Running Costs of the rental property are deductible so marketing, cleaning, water, electric, insurance, community fees and town hall rates are all costs that will eat into your profits. Besides, you will have to declare the income in your home country and pay tax there.
In order to mitigate income tax here, you can incorporate a Spanish Limited company known as a Sociedad Limitada. Your limited company, or you as a Non EU resident, can either lend the Spanish property purchase monies to the SL or your own Limited company can be a 100% shareholder in the SL. You can become a Director of the SL or as it is known in Spain an “Administrador”.
If you own the Spanish property in the name of the company, then the Running Costs set out above are all deductible, and the current applicable corporation tax on income after the deduction of the Running Costs is currently 25%.
In addition to the Running Costs, you can put a loan agreement in place between you or your limited company and the SL and charge a minimum rate of interest of 3,75%. You should issue regular invoices to the company and or have the loan reflected in the company books.
As the owner and manager of the company you can also charge management time to look after it, and receive this as income in Spain, which could be subject to social security and income tax here. Generally, we would only recommend this if you have a large portfolio of properties and live in Spain or need to employ someone here.
If you declare a dividend to a Non EU resident or company, then dividend tax is payable at the rate of 24% in Spain. Dividends to EU based tax nationals are taxed at the rate of 19%.
If a Spanish property is owned by a company and you wish to use it personally, you have to pay market rent to the company.
What taxes do I pay when I come to sell the Spanish property?
EU Citizens and Non EU Citizens will pay capital gains tax at the rate of 19%. All of the costs of purchase and sale will be deductible.
If a company sells a Spanish property and makes a gain, then the company is taxed at the rate of 25%. All of the costs of purchase and sale are also deductible.
What are set up costs of a company?
- Legal costs to incorporate a company are 1000 euros plus tax at 21% (1210 euros)
- If you want us to incorporate the company for you, we will require a power of attorney signed before a Notary. The power of attorney costs 250 euros plus tax (303 euros) and allow notary fees, if the POA is signed in Spain of up to 100 euros.
- Company names 19 euros.
- Spanish Tax number for your own limited company 150 euros
- Company house fees for incorporation 400 euros
- Notary fees for incorporation 250 euros
Approx total costs of incorporation 2432 euros.
What are the ongoing accountancy costs of a company?
Allow yearly costs of 1452 euros including tax per year for straight forward accounts.
As you can see from above, there is no hard and fast answer as to what maybe appropriate for your personal circumstances. If you require further advice, please contact My Lawyer in Spain. We would be pleased to assist you with the incorporation of a Spanish limited company to either buy property or to do business in Spain.
