There are no tax advantages when you are buying a property in the name of a company, but there are many extra costs and tax liabilities.
Just a brief note to clarify a frequent occurrence for which we receive requests for advice at our Law office. Many clients are advised to set up limited companies to buy properties in Spain or sometimes it is suggested that they purchase the shares of an existing limited company which is the legal owner of a property.
Why should you not buy a property in the name of a company?
Should you be thinking of buying a real estate property (either for your own use or as an investment), never use a limited company for this purpose. Limited companies are for running a business, not for holding ownership of real estate properties.
Despite what you are told by many investment and financial companies about the advantages of limited companies, I can confirm that there are no tax advantages or savings of any kind to be gained by using a limited company, but there are many extra costs and potential tax liabilities.
Purchase Real Estate in your own name
You must always purchase your real estate in your own name. It is much simpler, cheaper, and safer. You should never set up a company or purchase the shares of an existing company that holds the ownership of a property, just to buy real estate. The ownership of a limited company or shares in a limited company would imply taxes to be paid and a risk of taking over the company’s previous duties or commitments.
Please also note that apart from the costs and risks of setting up a company or buying an existing company, you would also be liable to pay the annual maintenance costs. Years pass by very quickly and you will see that having a company would involve spending money like water, with no benefits at all.
You may also be interested in this article about buying off-plan: https://www.malagasolicitors.com/buying-properties/7-tips-for-buying-house-in-spain/
Potential tax liability for rental payments
Finally, please also be aware that the Spanish Tax Office considers that if you are using a property owned by a company you should be paying rent for said property to your own company. This would implicate an important tax liability for the company who would have to pay annual corporate taxes at the rate of 25 % of the assumed annual rental that you should be paying to the company.
Conclusion: Purchase properties in your own name
Never set up a company to buy a property, nor purchase an existing company holding ownership of real estate. You should always purchase properties in your own name.
And if you have already made the mistake of using a company to buy a property, we would recommend that you liquidate it ASAP and register the property in your own name. This way you would avoid an unpleasant claim from the tax office and would also save a lot of money by avoiding the maintenance costs.
If you have any further questions or doubts regarding this matter, or need assistance for liquidating your Ltd company, please do not hesitate to contact us.
MALAGA SOLICITORS GROUP
Jose M. Lopez-Avalos – Solicitor
Tel. 952 901 225 – mail@malagasolicitors.com
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