Buying Property Through Spanish Limited Companies: No Tax Exemptions
If I say that Spain is –undeniably- a country in love with bureaucracy, your response will be: “really…I don’t believe you for a minute?!” Sarcasm is rarely better suited to a statement that here.
Yes, unfortunately a good proportion (not all) of the 2.7 million Spanish civil servants need to move paperwork around to justify their jobs and that includes the Spanish “Hacienda”. However, these last ones seem to be getting better all the time and one example is the clampdown on tax loopholes on buying shares of a property owning company, even considering the exasperatingly confusing layers of new amendments.
Let’s take an example of article 108 of the Stock Exchange Act, a precept devised to prevent Spanish property buyers from using companies to circumvent the payment of transfer taxes. The wording of the article, modified at least 6 times since 1989, has given food for thought to judges, lawyers, tax advisors and notaries who, in very intellectually dense interpretations of what the lawman really meant to say, ended up more confused than before (getting many hundreds of property buyers into trouble in the way).
Simply put, this article regulated a general exemption of Spanish VAT, Transfer Tax and Stamp Duty for the transfer of securities of companies that held real estate assets. Back in the nineties, the article regulated on the scope of the exemption of payment of taxes if you bought property via the shares of a company and it talked about not acquiring more than 50% of the share capital of a company whose balance sheet was made up by, in at least 50% of it, Spanish real estate.
So many people, ensuring they bought equally with a partner of friend, got away with this and bought property free from transfer taxes, much to the despair of the Tax Office. In a new twist, the lawman introduced a new condition: that 3 years would have to pass between the time of transfer of the property into the company and the sale of shares (to avoid purpose-made company incorporations).
Not being enough, new amendments were introduced but primarily, they came up with one definitive concept: that it was presumed that if any of the above were met, one was trying prima facie to cheat the Spanish Hacienda.
And to close the loop, they introduced the final amendment whereby provided the property was being used for an economic or professional activity, transfer tax will be applied because it is presumed (subject to rebuttal) that one is trying to buy a home and pay no taxes (pretty practical here!).
In conclusion, a no-go area for potential tax-avoidance adventurers.