Company-Owned Or Bought Properties In Marbella – Is It Still Worth It?

There are many reasons why people used companies, such as anonymity, protection, corporate management, or the application of British Law in case of Gibraltarian offshores but, regrettably, the main reason underlying the ownership of real estate property through a company in the past was purely tax avoidance:

• Individuals are taxed on imputed income just for ownership; Companies are not.
• Individuals are subject to wealth tax on the net value of the property; Companies are not.
• The purchase of a second hand property is subject to transfer tax always; the purchase of shares is subject to transfer tax only in certain cases. In addition, the change of ownership of a property is registered at the Land Registry; the sale of shares is not, so the chances of the authorities “discovering” the transaction are lower.
• The sale of a property is subject to “plusvalía municipal”, a tax on the increase of the value of urban land payable to the Town Hall. The sale of the shares is not, as the ownership of the property remains in the company.
• The seller of a property must pay capital gains tax in Spain always; the seller of shares will pay capital gains tax in the country defined in the applicable Double Tax Treaty. In addition, the sale of a property by non-residents is subject to 3% retention on account of capital gains tax; the sale of shares is not. And finally, the lack of registration of the sale of shares may help to hide the capital gain.
• Inheriting a property in Marbella is subject to Spanish Inheritance tax; finding out that the shares of a company have passed to the heirs can be difficult, and complicated with figures like Trusts.

However, most of these “advantages” are not real or effective today:

• Companies are not taxed on imputed income but, according to our domestic legislation, the “owners” and their relatives cannot use the house for free but at market rental income. And in a long-term rental it is the tenant who normally takes care of utility bills so some costs are not deductible, with the result of a yearly profit in the company and taxes to be paid on it. This is relevant for large homes that may have a substantial market rental income.
• Companies are not subject to wealth tax but the individuals behind are. It will depend on their residence and the applicable Double Tax Treaty, although most of the new treaties shift the taxation to Spain when the Spanish property represents more than 50% of the total assets of the company.
• Due to anti-abuse clauses, the scenario whereby the sale of shares of a company with 50% of its assets made up of real estate property is not subject to transfer tax is almost limited to business premises.
• The lack of registration of the sale is not sufficient to hide the transaction. Spanish companies must report to the tax authorities on any change of shareholders, and information about the Ultimate Beneficial Owner (owning more than 25% of the corporate structure) must be disclosed in the Annual Accounts that are deposited and available to third parties, as well as in front of a public notary in the so-called “Acta de Titularidad Real”.