More and more people are deciding to buy houses and property in the name of Spanish companies. There are various reasons but it is advisable to look at what the motives are:

1. Non resident property owners must pay a yearly tax on their estate and income from urban property for own use and a wealth tax, which is approximately 0.7% of the value of the property If the property is in the name of company then this tax does not have to paid annually.

2. If the property is rented in the company name the necessary expenses that are incurred can be deducted from the rental income. Amongst others these expenses may be:

a) Property maintenance (repairs, painting etc)

b) Municpal taxes on the property.

Rates (Impuesto sobre bienes inmuebles, a tax which is paid to the Town Hall each year)

Municipal tax on refuse collection

c) Insurance.

d) Monthly community payments.

e) Annual depreciation of the property value (there is an annual percentage which can be deducted for property depreciation).

f) Depreciation of the furnishings if the property is rented, this refers to furniture, decoration, cutlery, bed linen, etc.

g) Legal costs: lawyers, economists, etc.

3. If the property belongs to a non resident individual who rents the property then they are not able to deduct the expenses from the income. If the owner of a property is not a resident and is renting out the property then they must pay 25% of the gross rental obtained to the Spanish Tax Authorities, which many people see as an unfair tax because there are many expenses which are not tax deductible, companies however are able to deduct these expenses.

4. Use of the property. If the property is used by the business partners then it should have a market rental price. For example let us imagine that we have a business that also owns a property and this property is used by the business partners, their family, their children etc.. for holidays three months a year. The Tax Authorities assumes in this situation that the company would have to declare the normal rental fee for the three months when the property is being used and therefore would be able to deduct any expenses that are incurred.

5. We should always bear in mind that the Tax Authorities are able to find out if the property is being used by checking the electricity and water consumption.

6. Another reason to put a property in a company name is due to the exemption of what is known as Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) which is 6% of the property value. The Canarian Tax Authorities stipulate that the property remains under ownership of the company for a minimum period of five years and that the property is exploited immediately. In other words a company can not buy a property, not pay the Transfer Tax (6%) and then sell the property after two years, it must wait for at least five years before being able to do so. If the property is sold before the five year period then the company must pay the 6% tax which they did not pay on purchasing the property. In the Canary Islands this is controlled by the Land Registry.

7. Another important reason to buy property in the company name is the advantage of being able to deduct expenses if the property is sold. Individuals
who are non residents when selling their property have to pay 35% of the profit gained from the sale. Furthermore there is an immediate control of this because when a property is sold the purchaser must withold 5% from the seller and declare it the Tax Authorities.

8. Another advantage for a company is that it can offset losses from one year with future profits. For example if there are losses of 1.000 Euros in the first year and 2.000 Euros profits in the second year, the company can offset the losses with the profits and pay tax on the net amount.

9. When the shareholders of a company are individuals and residents there is a special tax regime.