Changes to Spanish Tax Rules Affect Property in Spain

There have been significant changes made to the Spanish taxation system this year and many of the changes which came into effect on the 1st of January affect property in Spain and foreign or non-resident owners of Spanish property.

A number of the new tax rules have been brought about following the application of pressure on Spain by the European Commission, and they bring the taxation treatment of non-residents in line with that of Spanish residents.  In some respects the changes to the Spanish tax rules are therefore far fairer; but the changes also make it unattractive to hold real estate assets within an onshore or offshore company structure, and those who already do so may need to take immediate advice and action.

One of the main changes to Spanish tax rules that affect property in Spain is an amendment of the capital gains tax treatment of non-residents.  Previously foreign owners of real estate assets in Spain who did not live full time in the nation had to pay almost double the capital gains tax when they sold their homes compared to that which residents of Spain had to pay.  This went totally against the policies of the European Commission which seeks taxation harmony in Europe and also the congruent treatment of all European citizens - and so they lobbied for the abolishment of this taxation discrimination.

As from January the 1st Spanish CGT levels have dropped from 35% to 18% for non-residents which is the same rate that Spanish nationals pay.  Withholding tax that buyers of Spanish property being sold by non-residents have to pay in case of a CGT liability arising has also dropped from 5% of the purchase price to 3%; and so as you can see these changes are very positive indeed and actually make it more attractive to buy property in Spain.

However, other changes certainly make it less attractive to buy property in Spain through either an offshore or an onshore company structure!

Previously investors in property who planned to buy and flip real estate in Spain or indeed let out property assets could reduce their property related tax burden through the clever use of an onshore asset holding company – they could offset income tax due from the rental of property and reduce CGT even if a property was held for just a year before being resold.  But now the government has changed the way it regulates and taxes such companies so that they are no longer an attractive vehicle through which to purchase and hold property in Spain.

New tax rules affecting these types of company see tax rates rise to between 25 and 30% and so it is highly likely most company owners who solely own real estate within their company structure will make use of the amnesty/transition period the government is allowing during which time they can close the company and acquire their property assets in their own name.

Regarding offshore companies, those whose primary assets are Spanish real estate will now be considered as resident in Spain and taxed accordingly - therefore it makes little or no sense to go this route when buying.  Anyone affected by or concerned about these changes should seek qualified advice from a Spanish or offshore taxation expert.