Acquiring spanish real estate

DIRECT PURCHASE OF REAL ESTATE

This section discusses the most important tax implications of the direct purchase of real estate for resident individuals non-resident individuals, resident companies and non-resident companies.

Resident individuals
Transfer taxes

Individuals who acquire Spanish real estate have to pay a transfer tax (in the case of VAT exemption). Generally, transfers of used buildings and rural land are exempt from VAT and therefore are subject to transfer tax. Real estate transfers are taxed at a rate of 6-11%, dependent on the Autonomous Community in which the property is located.

Value added tax

The applicable VAT rates are 10% for the transfer of new or substantially refurbished residential real estate and 21% for other types of real estate. The transfer of second-hand properties is exempt from VAT but is subject to transfer tax. Nevertheless, if the intended use of the property implies having the right to totally or partially deduct VAT, then it may be possible to waive the VAT exemption.

Stamp duties

The transfer of a property subject to VAT is also subject to stamp duty at a rate of 0.5%-2.5%, dependent on the location of the property and type of transfer.

Deductibility of costs

VAT can be deducted once an entrepreneur is able to charge VAT. Notwithstanding this, an entrepreneur may make a provisional deduction before they begin to account for output VAT, which is then regularised over the following nine years.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals.

Resident companies

Transfer Taxes

Companies acquiring Spanish real estate have to pay transfer tax (in the case of VAT exemption). Generally, transfers of used buildings and rural land are exempt from VAT and therefore subject to transfer tax. Real estate transfers are taxed at a rate of 6-11%, dependent on the Autonomous Community in which the property is located. This is deductible for corporate income tax purposes.

Value added tax

The applicable VAT rates are 10% for the transfer of newly-constructed residential real estate and 21% for other types of real estate. If the seller performs a second or subsequent transfer of the property, such a transaction would be exempt from VAT, but subject to transfer tax. Nevertheless, if the intended use of the property implies having the right to totally or partially deduct VAT, it may be possible to waive the VAT exemption.

Stamp duties

The transfer of a property subject to VAT is also subject to stamp duty at a rate of 0.5%-2.5%, dependent on the location of the property and type of transfer.

Deductibility of costs

VAT can be deducted once an entrepreneur begins to account for output VAT. Notwithstanding the above, the entrepreneur may make a provisional deduction before they begin to account for output VAT, which would then be regularised over the following nine years.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies.

INDIRECT PURCHASE OF REAL ESTATE

This section discusses the most important tax implications of the indirect (shares) purchase of real estate and its impact on resident individuals and non-resident individuals, resident companies and non-resident companies.

Resident individuals

Transfer taxes

If an individual acquires at least 50% of the shares in a so-called ‘real estate company’, the acquisition is subject either to transfer tax or VAT. The company qualifies as a ‘real estate company’ when more than 50% of its assets are real estate properties that are not linked to business activities. The management of an investment property is considered a business activity if a full-time employee is hired. The purchaser must obtain the control of the real estate company or, alternatively, if they already had such control, it must be increased.

Personal income tax

Income tax is levied at a rate of 19-23% on individuals on their worldwide income from shares (i.e. dividend).

Dividend withholding tax

Shareholders in Spanish companies are subject to withholding tax at a rate of 19% where there is a distribution of dividends. The dividend withholding tax is deductible from personal income tax.

Non-resident individuals

Non-resident individuals are treated in the same way as resident individuals, but capital gains made by non-residents on the disposal of shares of Spanish companies, for which their main assets consist of real estate, are taxable in Spain at a rate of 19%. However, under certain tax treaties such taxation may be avoided. Specific advice should be taken when considering investment opportunities.

Resident companies

VAT and transfer taxes

If a company acquires at least 50% of the shares in a so-called ‘real estate company’, this acquisition is subject to transfer tax or VAT. The company qualifies as a ‘real estate company’ when more than 50% of its assets are real estate properties that are not linked to a professional activity. The purchaser must obtain the control of the real estate company or, alternatively, if they already had such control, it must be increased.

Corporate income tax

Generally, captial gains received from companies in which at least a 5% interest has been held for at least a year (or with an acquisition value of over EUR 20 million) are exempt from corporate income tax.

Losses

The unused losses of the Spanish real estate company can be carried forward and applied against future rental income and capital gains of the same Spanish real estate company. However, the carry forward of losses may be denied or restricted under certain circumstances.

Non-resident companies

Income tax for non-residents

The disposal by a non-resident entity of shares in Spanish entities in which the assets are mainly composed of Spanish property are subject to tax at a rate of 19%. However, under certain tax treaties such taxation may be avoided.