Since 2022, it has been considered that the shares of unlisted foreign entities whose assets consist of at least 50%, directly or indirectly, of real estate located in Spanish territory may also be subject to IP taxation as if they were entities established in Spain.
In addition, the shares in the foreign company must be declared for IP at their total value and not for the proportional part of the value corresponding to the real estate located in Spain.
For example, a German company whose assets consist of a property located in Ibiza valued at €3,000,000 and other assets valued at €2,000,000, if a single shareholder resident in Germany owns all its shares, that shareholder must value its shares at €5,000,000.
Notably, the tax authorities advise that it is necessary to check whether a double taxation treaty exists to avoid double taxation:
- If the agreement allows a signatory country to tax the other country’s citizens for their shares in companies whose assets comprise more than 50% of real estate in its territory, the IP is due.
- If the treaty says that shares in companies of a state can only be taxed in that state, the IP is not due.
Where no treaty or the existing treaty is silent on the matter (e.g., the US or Portugal), Spanish law is applicable, and the IP is chargeable.
Before 2022, a “legal loophole” allowed non-residents to indirectly own real estate in Spain without paying IP tax.
- This was made possible by the interposition of a company located abroad, which owned the real estate.
- Not being a natural person, this company did not have to declare the real estate for IP.
The non-resident did not have to declare his shares in the company for IP either, as the company was not located in Spain.
Remember that you can count on Leialta to help you manage your company.
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