When purchasing a home or investment property in Spain you have the major expense of VAT (Value Added Tax), if it is a new development, or ITP (Transfer Tax Patrimonial), if it is a second-hand property. However, in certain circumstances, the law allows you to buy a property and reduce the cost of these taxes. Faced with the question of how to pay less tax we can consider forming a company. Will creating a company save us a lot of taxes or will it cost us more time and money to create the company than the savings obtained?
It depends on if we buy a home for our own use or if we are going to buy several as investment rentals in Spain.
If we only want to buy a house for our own personal use it is not advisable that we create an SL or Limited Partnership. However, if we want to buy one or more houses to invest, it might be convenient to create a company so as not to pay as much in tax since a company can deduct more costs from taxes than a person.
What kind of company should I create? The best thing would be to create a Limited Liability Company or S.L. (sociedad limitada) in which with only one owner you would invest roughly €500 + VAT (companies with more owners, more capital and more complicated corporate structure could cost up to €1000 or more + VAT). It should also be noted that it takes about one month to form a simple S.L.
To be eligible for VAT deductions you must purchase the property in a way to allow for the deduction. If you by for personal use or for renting out for profit, that does not qualify for a reduction in VAT. The property has to be purchased for a business activity if we want to be able to deduct the VAT. Some of the requirements to deduce VAT are the following:
- Both parties in the operation have to be businessmen or professionals.
- The property is purchased for an activity that qualifies for the VAT deduction.
- The waiver of the exemption does not have to be explicit.
There are special occasions in which the company buys homes and then someone rents it for their own use. In this case, you could be charged VAT instead of ITP.
It should also be noted that some expenses from the property purchase (notary fees, registry fees, agency fees, etc.) can be deferred, since they are linked to the purchase of the home.