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EXCLUSIVE: The key tax change for some non-residents with property in Spain

The Local Spain
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EXCLUSIVE: The key tax change for some non-residents with property in Spain
The tax change could have significant consequences for foreign business owners and the Spanish property market. Photo: Ronni Kurtz/Unsplash

The Spanish Treasury has changed its tax rules on property owned by non-residents through companies or businesses in Spain. Here's what you need to know.


Spain's Hacienda tax agency has cleared up some of the ambiguity that was born from changes to its wealth tax, introduced as part of a tranche of progressive tax measure last December, and it affects some non-resident property owners in Spain in a big way.

It has now been confirmed that non-residents who have property in Spain owned through foreign companies will now have to pay the wealth tax, not only on the Spanish property but also for the rest of the assets that make up the company.

However, this rule only applies to companies that have 50 percent of their assets or more in Spain.

The clarification came after months of confusion among legal experts when a German citizen received a reply from Spain's General Directorate of Taxes (DGT), stating that he must pay tax on the total value of his German-based company because his limited company bought a property in Ibiza worth more than 50 percent of its total assets.

According to the rule tweak, if any foreign-based company has assets in the form of property located in Spain, the entirety of the company will now be taxable.

Non-residents, whether Spanish or foreign, who acquired property in Spain through a foreign-based company before January 1st, 2022, did not previously have to pay tax on it.


However, when the Spanish government approved a windfall tax on the banking and energy sectors and introduced a so-called 'solidarity tax' on large fortunes, it also changed wealth tax rules to make non-residents who with property in Spain (through foreign companies) liable to be taxed on it.

It's a small change to Article 5 of the 1991 wealth tax law that went largely under the radar due to the other headline grabbing taxes, but one that could have significant consequences for foreign business owners and the Spanish property market.

It all came to light after the businessmen queried the changes with regards to a property his German-based company had purchased in Spain.

"With this modification, we have gone from one extreme to the other," Mallorca-based lawyer Alejandro del Campo told The Local Spain.

"We have gone from not having to pay Wealth Tax for non-resident individuals for foreign companies with real estate in Spain, to having non-residents have to pay for those companies, even for assets located outside of Spain, if the value of the properties in Spain is higher." 

Del Campo, who has raised the alarm before at European courts regarding similarly tough tax measures on non-residents by Spanish authorities, added that "this law was approved on December 27th 2022, which forces those affected to pay Wealth Tax for the entire 2022 financial year, without such foreign companies having had any time or margin to plan investments and prevent real estate in Spain from being their main asset."

READ ALSO: How Spain's foreign asset declaration laws have changed


In its response to the German national, the DGT stressed that tax agreements between countries will prevent double taxation on income and that only non-residents with over 50 percent of their assets in Spain will be affected by the change.

The DGT justification, which The Local has has access to, concerns a €7.5 million property bought in Ibiza by the man's limited company - in which he is a 25 percent shareholder - and appears to be "the only property owned by the limited partnership."

As a result, the DGT say, "it is considered that at least 50 percent of the company's assets would be would be constituted by real estate located in Spanish territory," meaning that is is subject to the wealth tax.

But how does this actually work? Let's look at an example.

Say a non-resident Frenchman has a company (in France) through which he bought a €6 million penthouse apartment in Paris and another €4 million property in Spain. In this case, he would not have to pay the Wealth Tax, since 50 percent of the assets are not in Spain. 

However, if a business owner in Sweden bought a €500,000 property in her home country and €1.5 million apartment in Spain through her company, she would be taxable under the new wealth tax rules.


Fortunes tax

Non-residents property owners in Spain will, from July of this year, also pay the 'fortunes tax' (Impuesto a las Grandes Fortunas), since it was approved last December. The tax is levied on assets over €3 million with a rate that varies, depending on the size of the wealth, between 1.7 percent and 3.5 percent.

According to Spanish property portal Idealista, the rule change "could scare away new foreign investments in the real estate sector."

Experts of the Spanish Association of Tax Advisors have warned that the tax modification "may turn out to be ultimately discriminatory, since it could be the case that the taxation of non-resident is much higher than that of the resident partner who also participates in the same company, simply because of the rule of valuation of the shares that has been included in said modification."


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