Investment in Spain: purchase for an individual or a company – which to choose?
Are you planning to buy a property in Spain? Wondering whether a purchase on an individual is a better option, or should you consider forming a company? What are the pros and cons of each of these options? Find the answers to these questions in our article.
Purchase as an individual
The decision to purchase property in Spain as an individual is often the most intuitive and simple solution, especially if you plan to use the property for residential or recreational purposes. You don’t have to incur the additional expenses of setting up and maintaining a business.
Purchase for a Polish company
Buying a property in Spain for a Polish company is as possible. All income derived from the rental of property in Spain is taxable in Spain, regardless of where the owner of the property (i.e. your Polish company) is based.
Thanks to double taxation treaties between Poland and Spain, you can avoid double taxation of the same income in both countries.
The downside is that VAT (IVA) is not deductible. For secondary market properties it is 7% while for primary market properties it is 10%.
Purchase for a Spanish company
Buying a property in Spain for a Spanish company is a popular solution among investors, both domestic and foreign. It is an option that offers a number of advantages, but also comes with some specific requirements.
Among the advantages of this type of purchase we can include:
- the possibility of deducting VAT
Buying a new property in Spain involves paying 10% VAT (IVA). For individuals, this amount is not refundable. However, if purchased by a company, it is possible to deduct this VAT from the company’s total tax liability, which can lead to significant financial savings.
2 Preferential taxation on rentals
If the property acquired by the company is to be used for rental, it is possible to obtain preferential tax treatment. Meeting certain prerequisites allows for a tax credit of up to 85% on rental income, and in addition, it is possible to deduct property maintenance costs such as community fees and property tax (IBI). These benefits are not available to individuals.
3 Deduction of operating expenses
When a company purchases a property, all costs associated with ongoing maintenance, such as utilities, cleaning, insurance, and community costs, can be deducted from the company’s income, reducing the tax base.
The disadvantages, of course, are the additional costs associated with setting up and running an additional business. Renting property purchased for a Spanish company involves invoicing taxed at a rate of 25% on income.
Conclusion:
The purchase of real estate for a company is an advantageous solution primarily for entrepreneurs who plan to invest in a larger number of properties or conduct rental activities on a large scale. In this case, the tax benefits can significantly outweigh the costs of setting up and running the company. In other cases, it is recommended to purchase for an individual.