More and more investors, especially foreigners, are asking themselves whether it is advisable to set up a company in Spain to buy real estate. This is a legitimate question, because at first glance it may seem more advantageous or even more “professional” to do so. But the reality, as is often the case in law, is that it depends.
There have been cases where using a partnership was the best option… and others where it created more problems than solutions. So if an investor is thinking of going down this route, it is wise to understand what is involved.
Firstly, using a company can make sense if we are talking about a medium or long-term investment, especially if you plan to rent the property or acquire several assets. The reason? From a tax point of view, companies can deduct many more expenses than an individual: renovations, supplies, maintenance services, administrative services… And, in addition, they pay Corporate Tax, which, in theory, is lower than Personal Income Tax if the profits are not very high.
There is also a clear advantage in terms of assets. If you buy a property through a company, the property is not in your name. This offers some protection against personal claims and makes it easier to sell the asset through the transfer of shares, without having to notarise a new sale and purchase.
However, this structure also has its unkind side. Setting up a company costs money. And so does maintaining it: you have to keep accounts, file books, meet tax deadlines, pay the advisor… We are not talking about exorbitant figures, but we are talking about a fixed expense that, if you only have a property and do not exploit it, may be unnecessary.
In addition, the tax authorities are very attentive to these operations. If it detects that the company does not have a real activity, i.e., it does not rent, does not have employees, does not invoice, it may consider that there is a simulation and consider that the real owner is the natural person, with the tax consequences that this entails.
Another important aspect: when a company sells a property, it is taxed on the profit generated without the possibility of applying reductions or exemptions that individuals have. For example, there is no exemption for reinvestment in the primary residence, nor is there a reduction for transfers by persons over 65 years of age. Everything is settled as a business profit, at 25%.
So, at this point the question arises, when does it pay off? It depends on the case. If you are looking to set up a small rental company, or if you are going to manage several properties as an investment, it probably does. It may also make sense if you want to keep the asset out of your personal wealth or to facilitate a future transfer.
But if the idea is simply to buy a second home, or a flat to rent on an occasional basis, the chances are that it will not pay off. The maintenance costs and tax risks may far outweigh the benefits.
If you finally decide to acquire a property through a company, the first thing to take into account is the correct drafting of the company’s articles of association. The corporate purpose must clearly include real estate activity. Secondly, be clear that you will need continuous legal and tax advice: every decision (from a building work to a rental) has implications. And third, keep rigorous accounting records. A company is not just a “folder” where you put the deeds to the flat: it has a life of its own, and the tax authorities know this.
In other words, buying through a company is neither good nor bad in itself. The important thing is to be clear about what you are doing it for. And as always in these matters, the most honest advice I can give you is this: if you have doubts, get advice before signing anything. Every situation is different and deserves its own strategy.
