Foreign Property Investment

Common Tax Planning Structures used to Buy Spanish Property

Sociedad de Responsabilidad Limitada (SL) - Registering a Branch/Surcusal of a UK Company in Spain

Why Use a SL or Branch to own Spanish Property?

In simple terms, corporate ownership of Spanish property can afford significant benefits for those either not personally fiscally resident in Spain or those owning valuable properties wishing to mitigate or even totally avoid Spanish inheritance, capital gains or wealth taxes. Obviously, such structures are not required by everyone but as a rule of thumb they begin to make financial sense for non-Spanish fiscal residents buying €400,000.00 plus properties or for wealthy fiscal residents of Spain.

Using a Spanish SL Company to own a property:

Spanish SL companies are used in conjunction with UK companies to allow non-residents to be fiscally treated as if they were resident in Spain. In the case, for example, of capital gains tax this can result in a substantial difference with fiscally resident companies/individuals only being subject to a 15% tax rate rather than the much higher rate of 35% which applies to non-fiscal residents of Spain.

Corporate ownership also circumvents the direct application of inheritance and wealth tax but it does then lead to withholding taxes on the distribution of dividends.

It is for this reason that the proposed structures employ a UK Limited company since they benefit from EU Directive 90/435 which mean that no withholding taxes shall apply. If beneficial, more aggressive but perfectly legal tax planning methods can be employed by inserting in a tax free offshore company from a jurisdiction not covered under Laws 31/1990 and 18/1991 such as a Delaware non-resident LLC or even a Belize company.

The benefits of the latter super structure is that it allows shares to be exchanged offshore as a method of transferring ownership which 100% avoids Spanish capital gains, inheritance and wealth taxes.

Using a Branch of a UK Company to own a property:

At first glance this seems to be introducing an unnecessary complication but in fact can save clients money as this structure does not need a Spanish and UK Company, merely a UK Company having registered an official branch in Spain.

The reason is that once officially registered as a Branch in Spain the UK Company has all the ostensible benefits of a Spanish SL whilst the Branch can obviously repatriate dividends through the mother company.

The negatives of this structure are that the Branch is more expensive to form than a SL but when combined with a UK company it ends up being the better of the two scenarios.

Click to view Diagram 1 - Using a SL or UK Company Branch owned by an Offshore Company to own a Spanish Company

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