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Buying a property from an offshore company.

Property Law

Antonio Flores Vila

21st of November 1999

Q. I am in England and I have been informed by my estate agent that the property I want to buy is owned by an offshore company. Apparently, the vendor says that in order to convey legal title to the property I need to buy the company. What are the implications of this?

Anonymous

    A. First of all, there is nothing preventing you from buying the property from the company as oppossed to buying the company itself, other than the interests of the vendor. Numerous properties were purchased during the property boom of 1980 on the basis of ownership through non-resident companies, most of them in fact in the so-called tax havens where insignificant taxes were paid. The real benefit of this was that the company would change hands, and with it, the spanish property, bypassing spanish transfer taxes which can amount to around 10% of the purchase price. The property would be still owned by the same company, but the company would be bought and sold. This continues to be the same. However, the spanish Taxman, aware of the tax revenue loss this represented enacted a special tax on offshore companies. A tax of 3% on the ratable value of the property (valor catastral, the basis for calculating some local taxes, such as council rates) was levied, making this option rather costly taxwise.

    For new properties, this option should be totally discarded. But for older properties, purchasing the company, thus avoiding spanish transfer taxes, might be a viable option in situations where the ratable value of the property -valor catastral- is much lower than the real value. The 3% corporate tax can be as low as 50% of the annual taxes payable where the property is purchased by a physical person. So the savings could be on the transfer taxes and on the annual property taxes. In the Costa del Sol, for example, properties sold for 100 million pesetas can have ratables values of 35 million pesetas. Confidentiality in ownership is also to be taken into account when deciding what course of action to be taken.

    Your case will need individual study and some careful planning.



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