Having your property owned by a Spanish S.L company, in which you own the share capital, can have taxation and financial benefits for certain individuals. This method may reduce, but will not avoid capital gains tax or inheritance tax when the property is sold or transferred.
It is where the share capital of the Spanish company is owned by another company, generally based offshore, that the problem now arises. In the past, changes in ownership of the property have not been disclosed to the Spanish authorities as this was achieved by transferring the shares in the offshore company.
This mean of avoiding taxation on property transactions is now in jeopardy as all lawyers and accountants must inform the Spanish tax authorities where they have knowledge that there has been a change in ownership of the shares held offshore. Capital Gains and Inheritance taxes may no longer be avoided and keeping the companies in existence is expensive and unnecessary.
More and more lawyers are advising their clients not to use the structured company route and to purchase property directly.
This of course will lead to many problems for individuals selling properties that are already owned through the company route. The resulting capital gain would be calculated on the difference between the sale price received and the original acquisition cost paid by the offshore company, not the price paid by the vendor for their shares. The resulting tax payable could be very significant. In this way taxes would be paid not only on the capital gain made, but also on the latent gain existent in the company acquired.
This method of ownership also involves the true owners of the property having to hide behind rental agreements with the company; incur very expensive annual fees and disbursements and is attracting more attention from the Spanish tax authorities.
We recently encountered a case where a lawyer resigned as the administrator and director of a company due to the new disclosure directives now being implemented.
Recently the Spanish tax office has set up new specialized units dedicated to the investigation of tax fraud. One of the sectors singled out for close inspection are properties owned through company structures.
(For further information contact Graydon & Associates)