I would like to draw your attention to the new tax laws that became effective as from 1st. January 2003 aimed at companies with no objective or activity other than to own real estate.

The purpose of this Law is to give the government greater control over this type of company and also to make their tax situation clearer.

Gone is the so-called "fiscal transparency" previously applicable to these owning companies and also to professional artist's companies.

These companies will no longer transfer the revenue to their partners. This means that once the corporate income tax is paid (originally levied at 30% and now at 40% of the profits obtained) partners may withdraw the after-tax profits without having to declare the difference on their personal income. This means they will no longer be liable for any additional tax.

Another significant change is that this kind of company will now only be liable for 15% tax over profit generated from selling the property.

Nothing better than an example to give you a clearer picture of the changes introduced:

An owning company has a property that it lets on a permanent basis for 600 euros per month. Naturally, the property also generates yearly costs such as rates, renovation or building and maintenance, replacement of furniture, etc. of lets say for arguments sake, 2.200 Euros. The tax situation of this company according to the new tax laws would be the following:

An owning company bought a property back in 1998 for 300.000 euros. That property is sold in 2003 for 400.000 euros, thus producing a taxable profit of 100.000 euros.

The corporate tax for this, now levied at 15% over the profit, would be 15.000 euros.

Close comparison with the previous system shows that whilst this kind of company is now liable for a higher tax rate (tax has risen from 30% to 40%) there is also an important tax reduction when selling property, from 30% of the profit to only 15%

Nevertheless, it should also be clarified that when the owner of the participations or shares in a company, is another company, this last company is also liable for corporate tax, although it will have certain tax benefits for already having paid the 40% through the former company.

The new law on patrimonial companies also offers the taxpaying partners the opportunity to wind up the company, in the majority of cases free of taxes, should they consider themselves at a disadvantage as a result of the new regulations. Companies that opt to go into liquidation (in which case the real estate would then have to be personally owned by the various partners) should adopt the decision to do so in the year 2003 and be registered in the corresponding Registry of Companies before the 30th June 2004. In these cases, tax benefits applicable so that this does not prove detrimental for the partners involved, comprise of exemptions from transfer tax and also from the tax on increase in developed land value, more commonly known as plusvalue tax.

As a final note, I would just like to add that the new legislation is only applicable to owning companies with no other activity and not to companies with any kind of economical objective.