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I want to buy and sell before completion of the projected property. Is an offshore company recommendable?

Property Law

Antonio Flores Vila

1st of March 2001

Q. I am considering purchasing a property in Spain as an investment, and am looking to sell it on to a client in a year´s time at a premium. The property is within a development which will be completed in 2 -3 years time.
I have been advised by a consultant that I could purchase the property in the name of an offshore company. I would then sell the shares in the offshore company to my client. As the company has the "option " to purchase the property I would not be subject to a capital gains tax liability, and as the property has not yet reached escritura stage, there would not be a 6% transfer tax liability.

Your comments on this structure would be appreciated.

Anonymous

    A. Dear Sir,

    You are able to structure your investment in the manner you have been advised. However, you ought to think that the buyer, or your client, may not be willing to purchase an offshore company (its shares), with the consequence of reducing therefore the number of potential clients. Bear in mind that some purchasers want a quick and easy purchase and ´offshore´ is not always the best word to approach a possible client.

    In addition to this, the purchaser would have to most probably incorporate a Spanish limited company in order to avoid the current 3% tax levied on the ratable value of that property where purchased directly by the offshore. That would mean that he would have to budget for the cost of running of two companies, which in the best of cases would not be less than 250.000 ptas annually. If the property does not have a high value, this option would be discarded by the purchaser´s legal representative.

    Secondly, there may not be Capital Gains Tax for two reasons mainly. The first is that the shares of the offshore company are sold ´offshore´, and therefore the Spanish taxman has no intervention on this transactions. I do not understand what does the ´first option´ mean, but unless you sell the shares offshore, you are subject to capital gains. However, in Spain this quick revenue system is implemented by offering the buyer the right to purchase the property from the developer in exchange for a premium. This ´premium´ is seldom declared to the taxman and often comes in cash, or a cheque payable abroad.


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