Buying property in Spain:  Can I put it under a company's name to save taxes?

Real estate buyers often wonder if it would be beneficial to establish a company to purchase a property and thus save on taxes. Is it effective or counterproductive to own a house under a company name? To answer these questions clearly, it's necessary to explain the implications of various taxes, especially the wealth tax (WT), applicable to both residents and non-residents for tax purposes in Spain.

In Spain, generally, each individual is WT-exempt on the first EUR 700,000, meaning that if a non-resident couple purchases property, they can be exempt up to EUR 1,400,000. Thus, many set these prices as the limit to own property under their personal names or under a company. However, this is not a significant reason to do so as we will see below.

If we purchase through a company, the partners will hold within their assets shares of the company. The value of these shares must be taxed in the WT of each partner unless the shares are exempt, which occurs if the legal requirements are met as of 31 December of each fiscal year. These requirements include, among others, that the company carries out an economic activity.

If the requirements are not met, the Spanish Tax Agency will consider the value of the property as part of the partners' assets in the same proportion as their shares in the company, making the creation of a company pointless for the purposes of the partners' WT avoidance.

Moreover, the Tax Agency considers that if a property purchased through a company is available for use by the partners, the company must charge them rent for use of the property. Therefore, it is presumed that the company is generating rental income at market valued, for which the company is taxed under Spain’s corporate tax (CT) rate at 25%. As a result, the Tax Agency could claim CT on the amount of the presumed rent and also initiate a penalty tax procedure against the company for lack of payment of the aforementioned amounts.

Should a non-resident individual personally buy a property in Spain as a vacation home, the owner must file two annual tax declarations – the Non-Resident Income Tax (IRNR) and the WT. For the IRNR, the tax rate depends on the property's value and the fiscal residence of the owner; if the owner’s fiscal residence is in the European Union, the tax rate is 19%, and if outside the EU, it is 24%. For the WT, if the property exceeds a value of EUR 700,000, the owner must declare it. However, in certain autonomous communities, such as Andalusia, the wealth tax liability is 100% exempt.

Effective from 2022 onwards, there is a Temporary Solidarity Tax on Large Fortunes, which is levied on the net wealth of individuals above EUR 3 million. There are the same exemptions as for the wealth tax.

It is always recommended to conduct a preliminary study before making a purchase, analysing all possible scenarios with a professional expert in the field.

Prof Jesús Ruíz Ballesteros is the Founder and Director of Ruiz Ballesteros. Holding an undergraduate degree in business and finance, a master’s in taxation, and a degree in law, Jesús is an innovative entrepreneur and an expert in the Spanish taxation system, international taxation and corporate commercial law. He is also the developer of Paxtum, the first legal app in Spain. In 2018, Jesús Ruíz Ballesteros was awarded the Cruz Blanca for Civilian Merit by the Ministry of the Interior of Spain.