Mark Stücklin, the knowledgeable founder of Spanish Property Insight, has highlighted an impending problem for investors buying property in Spain via the vehicle of an international company.
Until now, this has been a normal state of affairs. Wealthy investors set up an international company structure to buy properties in order to avoid tax, but it seems the Spanish tax authorities have plans to look into this and keep an eye on it. As Stücklin says, “it’s a ticking time bomb.”
Tax specialists Del Canto Chambers explained that the typical set up, which proved very popular from the 1970s to the early 2000s, usually consisted of, “International company structures, with some owned by double or triple vehicles involving a Spanish company belonging to a foreign company and, in many cases, a Trust on top.” The firm, which is based in both Madrid and London, believe that there are somewhere in the region of 5,000 properties in Spain, privately owned and using this investment structure.
Of course, it isn’t cheap to set up such a company structure, so the tax gains have to ‘vale la pena’ (worth the pain) as the Spanish say. They have been used to minimise tax payable to Spain and to make it easier to change the details of ownership and avoid inheritance tax. As you might expect, the properties owned under these company structures tend to be valued in the millions rather than a couple of hundred thousand.
Now Spain, like many of its neighbours, is taking a cool look at tax avoidance schemes, especially since its public finances are under pressure, and pensioners are marching in the streets for a better deal. Del Canto thinks that international company structures owning property have got a target on their back, and the taxation specialists are encouraging caution, because in their words, the Spanish are “high-handed and difficult to deal with.”
The report in Spanish Property Insight also suggests that the Costa del Sol is the first place the tax inspectors will go to “shoot first and ask questions later.” It is recommended that if you have a property under a company structure that you get advice about making sure you are tax compliant. Be prepared before the taxman starts asking questions – it is the best route to survival.