Buyers are sometimes offered to buy shares of a Spanish company which consists of a property, instead of buying the property directly. The seller will inform you that this option is a bargain but stay wary. It may be beneficial in some cases but it can involve risks. When a Spanish property is included in the capital of a company, then this is mostly a Spanish SL or Sociedad de Responsabilidad Limitada.
What happens if the company has debts? When purchasing shares (participaciones) of such a company, we buy all the rights but also all the obligations of the company. This is why it is essential to investigate if the company has any fiscal debts. It is important to study all the existing agreements, as when the changeover of the shares takes place nothing can be altered to the legal obligations which the company has agreed to initially. Before purchasing a property a double review is needed, on one hand the usual legal urban investigation of the property, and on the other hand the fiscal bookkeeping of the company.
Is it right to say that purchasing a company implies not paying any transfer tax?
Yes and No. The purchase of shares primarily means not paying any transfer tax. Most clients presume to think it is the easy option just to purchase the shares of the company and save paying the 7 % transfer tax which you would have to pay if bought directly. But of course it is not as easy as one thinks, and the Spanish Law has made it difficult to hide the fact that transfer tax is needed to pay. Article 108.2.a of the Spanish Law on the market exchange (Ley Mercado de Valores) states that if a party decides to take control of a company of which the assets are more than 50 % consisting of a property situated in Spain, they are entitled to pay transfer tax.
How much control does one have when owning a company? Does this imply that when purchasing shares, you have full control over the shareholders of the company? In most situations you have full control if you own more than 50% of the shares (50% + 1). If this is the case, you are entitled to pay the transfer tax which is 7 % on the actual value of the property. But Spanish Law created a situation which can turn this around. So if a couple has wed with a prenuptial agreement and each party have 50 % of the shares of the `capital´ established, this cannot be considered an acquisition of control. This means that when purchasing the shares, the transfer tax is not needed to be paid. The matrimonial agreement is not considered as one legal individual, and is not considered to be the buyer of the shares. In practise it is often the case that couples establish these companies to escape paying Transfer Tax. But be aware, that laws in Spain do change regularly and it is important to have this investigated.
Are there any taxes to be paid when selling a property? When selling a property, an individual is charged over the value, at a rate of 19 %, therefore a non-resident selling the shares of a company will pay the same capital gains tax on the value purchased and sold price of the shares. Please note that if you sell the shares as a company, then you are not under the capital gains system for non-residents, but this will bring the company subject to corporate tax (Corporation Law).
Sirejacob Legal and Tax is specialised in legal and fiscal law for foreigners in Spain. The team will guide you through the purchase of a property, investment planning and inheritance law. We have offices in Marbella, Altea and Barcelona.