Tax Obligations When Buying Property Through a Company in Spain

One of the first things foreign companies must consider when purchasing property in Spain is the requirement for tax representation. Before engaging in any taxable operations, such as property transactions, you’ll need to appoint a tax representative in Spain. This representative can be either a natural or legal person residing in Spain. They will act as your primary point of contact with the Spanish authorities and ensure you comply with local tax obligations.

The type of company you have - whether it's a non-permanent establishment (Non-PE) or a permanent establishment (PE), determines how you appoint your fiscal representative and how they handle your tax responsibilities.

• Non-PE Companies:

If your company is a Non-PE (meaning it doesn’t have a permanent establishment in Spain), you will need to appoint a tax representative in Spain. This person will handle your company’s tax filings and ensure you comply with local tax regulations. However, it's important to note that the fiscal representative is not liable for the company’s taxes; their role is simply to facilitate tax compliance.

• PE Companies:

If your company is a PE in Spain (i.e., the company has a fixed place of business in Spain), the fiscal representative will be jointly liable for your company’s tax obligations. The representative must either be a resident in Spain or an EU citizen, and they will be legally responsible for ensuring that your company meets its tax responsibilities.

When purchasing property in Spain through a company, several taxes apply. The specific taxes you'll need to pay depend on whether you’re buying a resale property or a new property. Here's a breakdown of the key tax obligations foreign companies need to consider:

• Transfer Tax (ITP) for Resale Properties:

If you're buying a resale property (i.e., a property that has been previously owned and is not new), you'll be subject to Property Transfer Tax (Impuesto de Transmisiones Patrimoniales, or ITP). This tax is calculated based on the purchase price of the property and varies by region. For example, ITP in Andalusia is currently 7%. Furthermore, if your company meets certain requirements, particularly for house flipping, it may benefit from a reduced ITP rate. Companies operating under the Plan General de Contabilidad del Sector Inmobiliario may qualify for a reduced rate of 2% in Andalusia.

• VAT (IVA) for New Properties:

If you’re purchasing a new property directly from a developer, instead of the ITP, you will need to pay Value Added Tax (VAT). The VAT rate is typically 10% for residential properties and 21% for commercial properties. If you plan to rent out your property after purchase, VAT can be deducted from expenses directly related to the rental, such as property management fees, maintenance, and utilities.

• Stamp Duty:

In addition to ITP or VAT, there may also be subject to Stamp Duty (Impuesto de Actos Jurídicos Documentados or AJD), which is typically charged at a rate of 0.4% to 1.5%, depending on the region. This tax applies to the signing of notarial deeds and property transactions.

In addition to the taxes payable at the time of purchase, property owners in Spain, including those owning property through a company, must be aware of several ongoing tax obligations:

• IBI (Impuesto sobre Bienes Inmuebles):

The IBI is the annual property tax, also known as the municipal property tax, that is paid to the local municipality. This tax is calculated based on the property’s value, and the rate can vary depending on the location of the property. Typically, it ranges between 0.4% and 1.1% of the cadastral value (the official government valuation of the property). This tax must be paid annually.

• Corporate Tax:

If the company holds property in Spain as part of its business activities, it will be subject to Spanish corporate tax, which is 25% on profits. If the property is held by a company for investment purposes, any income generated by the property (such as rental income) is taxable under corporate law.

• Non-Resident Income Tax (IRNR):

If your company is not a resident in Spain but owns property that generates income (e.g., through rent), you will be subject to Non-Resident Income Tax (IRNR). The tax rate is typically 24% on rental income generated by the property. However, for residents of EU countries, this rate is reduced to 19%. Additionally, there are deductions available for expenses directly related to the property, such as maintenance costs, property management fees, and mortgage interest. Finally, you’ll need to file an annual tax return in Spain to report any rental income, even if you're incurring a loss.

At UTRUST, we specialize in providing expert legal guidance to foreign investors navigating the process of buying property in Spain. Whether you are buying property through a company or as an individual, we can help streamline the process and avoid costly mistakes.

Contact us today at info@utrust.es to learn how we can help you make informed and successful property investments in Spain, with a focus on minimizing tax liabilities and ensuring legal compliance.