Corporate income tax
Corporate income tax (CIT) is charged at the standard rate of 35% and applies to a Spanish company holding property in Spain or to a non Spanish resident company trading in Spain through a branch or holding Spanish real estate. The tax is reportable on an accounting year basis.
Capital gains
Capital gains from property owned by Spanish incorporated companies and non resident companies trading in Spain through a branch are subject to CIT at the standard rate.
Municipalities may levy a tax on gains from urban land values based on the cadastral value of the land. However, the maximum period over which the gain is calculated is twenty years.
Property tax
Property tax is generally payable by non resident companies at 3% on the cadastral value of the property (which is determined by the tax authorities, and does not exceed 50% of the market value of the property). However, an exemption may apply if the following requirements are met:
1. The company is resident in a country which has concluded a double tax agreement with Spain which includes an information exchange clause; and
2. The individuals (ultimate shareholders) who directly or indirectly hold the participation in the non-resident entity must be resident in Spain or in a country with a double tax treaty as outlined above.
Transfer tax
Transfer tax is charged on transfers of property at 7% with a few exceptions where the rate is lower depending on the location of the property (e.g. 6.5% in the Canary Islands).
Where more than 50% of the assets of a Spanish company are constituted by Spanish real estate and the acquirer gains control of the company (via a holding of 50% or more), the transfer of shares is subject to property transfer tax at 7% of the ‘real value’ of the real estate (approximately equal to fair market value).
VAT
The main VAT implications regarding Spanish property are as follows:
- The first sale of a property is subject to VAT at a rate of 7% for housing and 16% for commercial premises. If a sale is subject to VAT it will also be subject to Stamp Duty at a rate of 0.5% or 1% depending on its location.
- The second and subsequent sales of a property are VAT exempt but subject to Transfer Tax. However, the VAT exemption can be waived provided that certain requirements are met. The acquirer must be a VAT payer and have the right to deduct 100% of the input VAT.
Property Investment Funds
Spanish Property Investment Funds (PIFs) are subject to CIT at the reduced rate of 1%. Previously, the exclusive purpose of the fund had to be investment in urban property lettings. A change of legislation in November 2005 means that residential development activities are now also allowed on up to 20% of the fund’s total asset value, provided that such assets are held for a total of 7 years following completion of the relevant development activities. At least a 50% of the fund’s assets must be housing and the minimum number of participants is 100. In addition, real estate other than residential developments mentioned above, must be held for a minimum of 3 years (unless authorisation is given by the Stock Exchange National Commission).
The above is for general information purposes only. It is not intended to be comprehensive or to provide any specific tax advice.