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I am buying the shares of a property holding company. What should I bear in mind?
Tax Law
Antonio Flores Vila
23rd of April 2001
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Q. We are negotiating to buy an apartment in Marbella. The owner suggested that he will sell his appartment to his Spanish-based company and then we will buy that company with the property, listed on
it. He also mentioned that the tax (about 16.5%), payable at the closing date, will be returned to the company in a few months. Is it all true and who normally pays the tax - buyer or seller?
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A. The proposed purchase is being prepared by the vendor in order for him to avoid Capital Gains Tax. What he does is incorporate a property on to a company he has formed and then sell the shares of the company. If all goes according to his expectations, he pays 1% tax on incorporation of the property to his company and no tax when selling the shares.
As far as you are concerned, the tax payable on purchase of the shares would be none, as shares are exempt from transfer tax. However, there is a proviso in the law whereby 6% transfer tax would be due, as the company would presumably be only a holding company for a property, and therefore it is deemed that there is a real transfer of property.
Shares are exempt from tax, and some people just do that, buy the shares of the company with all existing assets, therefore not paying taxes. If the taxman finds out there has been a property holding company sale, he will certainly demand payment of transfer tax plus penalties and interests.
Now depending on how the company share ownership is configured, you will be able to be legally exempt from tax and also to obtain, for the same price, a newly incorporated company. Bear in mind that it may not be of interest to have a company owning the property, as there are company annual running costs to be included in the annual property costs schedule.
My recomendation is that you are assisted by a lawyer, in this purchase as in any other legal matter, to avoid future problems. Once you have bought, in most of the ocassions there is little recourse to the vendor is something goes wrong.
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