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Is it interesting to use an off-shore company to purchase a Property in Spain?
Property Law
Antonio Flores Vila
4th of May 2004
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Q. I am interested in purchasing a property in the village of Gaucin, Andalucia. The property has been completely demolished, apart from the the facade, and is being completely rebuilt by the English developer. The purchase price is 450,000 Euro.
The developer informs me that the purchase would be via an off-shore company in Gibraltar and to proceed with the purchase I would need to provide a small deposit (to take it of the market) and then a 1st downpayment of 30-40%, with the balance being paid in one or 2 further payments.
I have never purchased property in Spain before so need some good advice on making this purchase. I have questions such as:
- Is the off-shore company a good way of doing this?
- If I make a significant down-payment, how am I protected if the developer fails to complete the refurbishment?
- Could you recommend a good lawyer or would it be safe to use the lawyer in the village that everyone seems to use?
- Would one method of purchase be to buy the property as is (about one-third rebuilt) for, perhaps, 150,000 Euro and then pay the remaining 300,000 Euros to the developer as a building contract fee? This is a suggestion by the developer. Is it legal/sensible?
Anyway, can you let me know if you can provide the legal help that I am looking for.
Thank you.
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A. As a preliminary assessment of the proposed way forward I would make the following comments:
- Buying off-shore in Spain is not anymore a valid proposal when purchasing property abroad unless you are looking at either inserting a Spanish limited company between the property and the off-shore company, in which case your annual running costs could well run into a few thousand Euros, or where you are looking at concealing your identity for anonymity reasons. A property owned directly by an offshore company will attract costs of 3% of the rateable of the property, a hefty levy if the rateable value is high. If we consider the rateable value being say 150,000 Euros your liability would be of 4,500 Euros, in addition to the 1,5k euros charged by the offshore entity if it is based in Gibraltar. The most sensible options are to either purchase directly (in your physical name) or via a Spanish limited company.
- The payment proposal is in my opinion not secure if the developer does not provide you with a simultaneous bank guarantee. If the latter is available, a 30% on private purchase contract/70% on completion spread would be acceptable. Any variation of this would depend on the parties´ agreement.
- Your proposal of purchasing the land at a given value and then sign a building agreement with the developer (turned contractor now) is the safest proposal and I would try to opt for it, providing the necessary guarantee to the contractor as far as his side of the deal is concerned.
Apart from these consideration, others such as planning permission, architects project, time limits etc, would have to be looked into.
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