Every year, thousands of people fulfill their dream of buying a property in Mallorca. In addition to the "classic" purchase of private property, more and more investors are choosing to buy a property through a Spanish company. However, caution should be exercised here.
Back in the 1980s and 1990s, buying a vacation home on the Balearic Islands under a limited company was considered extremely attractive - usually as a "Sociedad Limitada" (S.L.), the equivalent of the German GmbH. Until 2007, the advantages outweighed the disadvantages. Especially with regard to taxes. However, this changed when the laws were amended.
Although it has been made easier to set up a limited company to promote the economy in Spain, since a ruling in 2013, it is only allowed to buy a house if the rent it receives covers its costs. In addition, Spanish corporations that rent out real estate are treated equally for tax purposes for all types of rental. This requires proper accounting with a profit and loss account and balance sheets. In addition, all relevant regulations and laws, such as social security contributions, must be complied with.
Even if a foreign corporation rents out real estate in Spain without establishing a permanent establishment, self-use of the property, which is only permitted for natural persons, is excluded. Therefore, any use by shareholders or related parties must be treated as a normal market rental.
Compliance with Spanish laws and guidelines is mandatory
Anyone wishing to purchase a property in Mallorca through a Spanish company cannot avoid complying with the numerous legal regulations and procedures. Especially when setting up and operating a company. When setting up a Sociedad Limitada (S.L) or Sociedad Anónima (S.A.), numerous steps must be followed, which are very complex despite the reduced hurdles. These include checking and reserving the company name, opening a bank account, applying for a Spanish tax number (NIE) at the tax office, drawing up the articles of association and registration in the commercial register, to name but a few.
The S.L. also requires a minimum capital of € 3,000. The share capital of an S.A., as a Spanish public limited company, is at least EUR 60,101, of which at least 25% must be paid up.
Due to the large number of legal requirements and obstacles associated with the establishment and thus the purchase of a property in Mallorca by a Spanish company, we recommend working with an experienced lawyer. We have been working successfully with the renowned law firm PORTA & ASSOCIATES in these areas of law for many years.
Profitable despite taxes?
Since 2013, the following has applied to direct and complete real estate ownership by the Spanish S.L.: If the property is used free of charge by the shareholder instead of being rented out, this constitutes a hidden profit distribution. This must be taxed in Germany. This is a problem that always arises with this type of own use.
Ultimately, therefore, a cost-covering rent is required that secures both the Plot and the financing. The basic market rent is not sufficient here. The income must in turn be taken into account as revenue. Around 25 % tax is payable on the calculated profit. In addition, German taxpayers and shareholders of a Spanish S.L. must also take account of wealth tax in accordance with the new BFH ruling. Whether a property purchase under a Spanish corporation is worthwhile and really brings the hoped-for profitability is a case-by-case decision in terms of tax treatment. This is best made with legal advice.
Saskia Porta, a registered lawyer in the German and Spanish Bar Associations, is a recognized expert in inheritance, corporate and contract law with specialist knowledge of the Balearic Islands. She works alongside Dr. Dominic Porta, a recognized expert in international commercial law with specialist knowledge of Spanish real estate law, in his law firm in Mallorca. Here, the specialist lawyers advise clients of NEPTUNUS INTERNATIONAL Real Estate, among others, on all legal matters relating to real estate.
More information at https://www.anwaltmallorca.eu/
