Investing in Spanish real estate through a Spanish Limited Liability Company (SL)
To invest in Spanish real estate, more and more people are choosing to set up a Spanish Limited Liability Company (SL) through their holding company.
What should you pay attention to here?

Investing instead of lending

The reason for this consideration is that if there is a high private loan from the holding company, this may be considered excessive lending by tax authorities, which can then classify as a dividend on which tax must be paid.

If the holding company instead invests in a real estate company, that is an “investment” and not a “loan,” so no dividend tax applies. Of course you should coordinate this with your advisors. The lawyers of OTIS Advocaten in the Nederlands can assist you with this.

Benefits of a Spanish SL

Investing through a Spanish SL also has other advantages, especially if you are investing in multiple properties and if renovations will take place and the properties will be sold again.

The costs incurred in remodeling homes can be deducted from profits made on the sale of other homes. If properties are purchased privately, tax on the profit for each property must be paid. The benefits of an SL are mainly fiscal and therefore financial.

Rental is essential

It is crucial that the Spanish SL operates as a business. For example, if the SL owns a property, it must be rented out. Without rentals, the Spanish tax authorities can otherwise impute ‘fictitious’ income to the ultimate owner for presumed private use of that property.

This means the owner must pay taxes on this fictitious income. If the owner lives outside Spain but within the EU, the non-resident rate of 19% applies. If the owner lives outside the EU, this is 24%.

Fees and taxes

Setting up and managing a Spanish SL involves costs, including accounting, tax returns, and financial statements. When real estate is sold, the gain falls into the SL, on which corporate tax must be paid.

As a rule, these costs and taxes will (should) be lower than the taxation that may be levied on excessive borrowing and the other benefits of investing in property in Spain through an SL.

Your legal co-driver

Setting up a Spanish limited liability company can be a good solution to buying property in Spain, but it is not without its challenges. Make sure you are well aware of tax obligations and potential pitfalls.

Do you have questions about buying property in Spain or the best strategies to do so? Contact OTIS Legal Group. We are happy to help you with expert advice and guidance.

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