Property investment in Spain

When you invest in real estate in Spain, note that:

• Taxes may vary significantly depending on the region in Spain where you plan to buy the property.
• You can obtain a work permit in Spain (a golden visa) via an investment over 500,000€.

The property tax on a real estate investment in Spain depends on how you structure the investment to take advantage of the best tax rates, using investment vehicles in Spain, such as the TRLIS, SOCIMI, and ETVE.

Tax summary

• Transfer tax: There is a sizeable tax imposed when you buy a property. See full article.
• Property tax: The yearly property tax in Spain is called IBI. The rate is relatively low. See full article on property taxes.
• Wealth tax: Every region has their own rules. Madrid and Andalucia have exemptions from the wealth tax. The wealth tax is applicable to residents and non-resident individuals with assets over 700,000€ per person in Spain (or worldwide if you are a resident of Spain). That is why we recommend anyone in Spain with assets over this amount to use a corporate structure. See full article on wealth tax.
• Corporate taxes: See full article on corporate taxes.

Corporate structure

What is the best corporate structure to buy properties in Spain as an investor?

If you plan to invest less than 3MM euros, the best structure is a limited-liability company (SL). In 2023, the corporate tax rate will be 15% for the first two years after earning a profit and the social capital is 1€. You can compensate the amount you invest in real estate with the amount you receive in profit. If you plan to invest more than 3MM euros, you should look into forming a SOCIMI.

Can I buy properties in Spain with my UK LTD?

Yes, but then the tax rate will be around 24%, as the entity will be taxed as a non-resident. Also, any dividends paid in Spain will be taxed at around 19%, on top of whatever tax rate you pay in your country.

TRLIS

If your business owns and rents out 8 properties or more, you can receive a reduction of 85% on your corporate income tax (Impuesto de Sociedades). If you are a group or an individual and have over 1MM euros to invest, this may be a good fit. The corporate tax is 15%, but you have to have at least one employee. Some regions such as Valencia provide additional tax benefits for this type of company. When you rent out the properties that you invest, the transfer tax can be exempt. You cannot sell the properties for 3 years and you have to use the properties for rental.

SOCIMI

The SOCIMI is Spain's version of the Real Estate Investment Trust. If you are planning to invest over 3MM €, the SOCIMI is a good choice. The corporate tax rate is less than 0%, but they are obliged to distribute a minimum of 85% of their profit among the partners. If the partners are individuals, they will be taxed on income at 19%, if they are foreign legal entities, they will be taxed in their country of origin.

ETVE

The ETVE is a foreign holding (closed end mutual fund) in Spain. It is an entity that owns shares from other entities in a foreign country. The tax rate is as low as 3%. There are some conditions for keeping the investments in Spain over a number of years. Dividends are exempt if you are a non-resident individual. Spain is an attractive choice for establishing a holding company for foreign securities.

Our services

Strong Abogados provides legal and architectural services to individuals and investment groups who want to buy property in Spain.

We listen carefully to understand exactly what your plans are for the property or properties. We then provide assistance in investment analysis, detailing for you all the costs associated in executing your plan. If you decide to move ahead, we proceed with the legal and licensing work in buying the property.

We offer a wide range of services from our multidisciplinary team of lawyers, architects and economists:

• Research of investment opportunities located in Barcelona and Tenerife: whether you are interested in buildings, offices, hotels, warehouses, or land.
• Certified property appraisal. We can also perform a full property survey in accordance with the standards set by the Royal Institution of Chartered Surveyors (RICS) as well as the guidelines established by the International Valuation Standards Committee (IVSC).
• Analysis of the financial feasibility and tax planning for the real estate investment and utilization.
• Legal services related to the acquisition.
• Financial management of real estate investment.
• Certificate of the building's energy rating.
• Processing of any permits required for your property.
• Renovation work: project planning, licensing, contracting and construction supervision.

Strong Abogados does not work with offshore tax havens.

Case Studies:

Articles:

FAQs:

Case Study 1: Lepanto Street, Barcelona

John and Marc found and bought a three-story building in very poor condition. It was located in the Ensanche district of Barcelona, close to the Gaudí Sagrada Familia.

The property was purchased in July 2013 at a price of 405.000€.

The steps to new construction in Barcelona are many. Before proceeding with the demolition, permission is required from the City Hall in order to proceed with demolition. Obtaining this permit requires a “Special Urban Plan”: an architectural plan for the new construction project. The plan must define the surface area to be built, the number of floors, ventilation of the courtyards, composition of the facade, etc. Once the full plan is prepared, one can then apply for a building permit to the city council.

This Special Plan was designed by our team of architects specialized in urban planning.

In February 2014, after many hours of negotiation with the Barcelona City Hall, the plan was approved and the building permit was granted. The new design had six floors, three more floors than the original building. The first floor was for commercial space, the other five floors were for residential use.

John and Marc sold the property as is. There was no construction or demolition done. The building was sold with the approved project plan, including the change of use for the property. Their initial investment was 405.000€. They sold the property on October 3, 2016 for 1.075.000€. The fees for the project and approved permit were 22.000€.

Case Study 2

Reasons to invest in Spain in 2023

European Central Bank economists have warned about the general fall of house prices in the Eurozone, yet the Spanish property market also has its own singularities. The increase in interest rates has an obvious effect on consumers, since most will want a mortgage in order to buy their own property. That fact, combined with inflation, a slackening of the market, and an expected recession, the possibility of the fall in demand for second-hand housing increases. If this decrease in demand occurs, most likely the decrease in housing prices will follow.

If that happens, an opportunity will open in the coming months as a fall in prices will benefit investors who have liquidity and who can wait for the right moment to buy.

On the contrary, a significant fall in the suppy of rental apartments will continue to push rental prices upwards.

The tendency of price rises in the rental market will be high prices because of two main reasons. On one hand, the rise in inflation will directly affect contracts. On the other hand, the increase in mortgage rates will make it more difficult to obtain funding in order to buy a property. With people being priced out of buying a property, they will be forced to move to the rental market. Since there are no signs of the supply of rental units increasing, the demand will continue to be intense, so in 2023 we will keep seeing relevant price increases, at least until the economy and especially employment rate begins to shrink.

About SAREB: the "banco malo"

The real estate meltdown that hit Spain especially hard in 2008 left the country with thousands of unsold and foreclosed properties. Some of these assets are still in the hands of the banks, others are owned by construction companies, and others remain in the hands of the creditors. There have been many attempts to promote and to reduce that pile of properties. But with the Spanish real estate market suffering the largest price drop in centuries, many of these properties are still waiting to be sold. After the agreement between the government and the Spanish banks, a great number of these assets are now in the hands of SAREB, the so-called "banco malo".

SAREB stands for "sociedad de gestion de activos procedentes de la reestructuracion bancaria". SAREB was established by the government in order to save the banks from ruin. The main activity of SAREB is to manage and sell the properties from those bank entities that received protection (primarily BFA-Bankia, Catalunya Caixa, NCG Banco-Banco Gallego, and Banco de Valencia). Banks, energy companies, and other investors own a 55% share of SAREB; the other 45% is owned by a governmental institution called FROB. As of today, SAREB has received 197,474 assets: some are loans, others mortgages, and some plain properties.

Pura Strong, partner at Strong Abogados, says that the current interest in real estate in Spain is revealing a different type of investor than 10-20 years ago. There will always be retirees looking for a holiday home on the coast, but there are now many investment groups or holding companies who want to invest in whole buildings in the cities. They want to renovate these buildings and then rent or sell the individual units, according to Ms. Strong. The Spanish market is perceived as "supply" by investors from countries such as Russia and China. Group investors and real estate holdings companies are watching the Spanish real estate sales figures with interest.

How does SAREB fit in? In the opinion of experts, SAREB is not going to be of primary interest to these investors. In many cases, the properties sold by this institution are termed as "toxic" -- they lack the quality or location to attract international investors. The big Spanish banks have made great efforts in online marketing and which already have their websites full of properties ready to be bought.

If I'm buying a property, can I save on taxes by creating a company?

If you buy a property principally as an investment, then depending on the value of the property or properties and your future plans, it may be cost-effective to form a company (SL), paying off the cost of forming the SL and accounting for the SL.

You should consider the question of whether to become a legal resident or not, and whether to create an SL or not, as part of your international tax plan, a plan that should be thought out if you live or work in more than one country.