Corporate Ownership of Properties and the Assignment of their Use to Shareholders or Managers.
The purchase and posterior use of a property through a company in which you are a shareholder or manager is not a normal option in the property market. However, once this purchasing formula is accepted, you must be aware of the tax implications deriving from it.
This is because there must be corresponding consideration from the shareholder (rent payment) and, likewise, the corresponding taxation by the company of the income generated. Surprisingly, there are still some individuals who, even if they have opted for this legal purchasing and property use option, are unaware, avoid or ignore the fact that temporary or permanent use of the property belonging to the company in which they are a shareholder must be accompanied by a consideration in the form of rental payments.
The Spanish Corporate Tax Law is crystal clear when it states in Article 18.1 that “operations executed between people or linked entities – linked is understood to be an entity with its shareholders or managers– shall be valued at their market value.” Based on the rotundity of this regulation, the tax implications of properties owned by companies and their use by the companies’ shareholders or managers can be analysed:
1 (a) With regards to Spanish companies that own properties and whose shareholders or managers residing in Spain temporarily or permanently use the properties, their free assignment would constitute a presumed income for the company. This (presumed) income would be subject to corporate tax at a rate of 25%, that is to say, the current general rate. This income would also be equivalent to the market value for renting or leasing property with similar characteristics (essentially the type, surface area and location) and should be subject to a quarterly declaration and payment.
1. (b) From the shareholder or manager’s perspective, the temporary or permanent use of the company’s property would constitute an income in kind pursuant to Article 42 of the Spanish Personal Income Tax Law and they would have to pay taxes at the current rates,
that is to say, at progressive rates of 19% (up to 6,000 Euros), 21% (up to 44,000 Euros) and 23% (over 44,000 Euros). Thereby, in their Personal Income Tax declaration, the shareholder must declare a total equivalent to the market value of the aforementioned rental as capital gains tax.
2. (a) With regards to foreign companies that own properties in Spain which are used and enjoyed by non-resident shareholders or managers, the Spanish Non-Residents Tax Law must be contrasted with the Agreement to avoid double taxation from the company’s country of residence, based on the Spanish legislative requirement that the transfer of assets (use and enjoyment of the property) likely to generate income in Spain will be presumed gainful, unless proven otherwise. This is so that a non- resident company that owns a property in Spain, and which is used by its shareholders o managers, obtains a presumed income in Spain which is subject to taxation in said country. Again, the value of the income shall be the market value, as previously indicated for Spanish companies.
2. (b) Regarding the analysis of tax implications for the non-resident shareholder or non- resident manager of the company -also a non-resident- the temporary or permanent use of the company’s property located in Spain would not be subject to Spanish Personal Income Tax.
Therefore, it is evident that the free assignment of properties by companies to their shareholders or managers is perfectly viable and completely legal; it is legal for both the company and the shareholders and managers. However, it is essential to obtain the appropriate guidance to understand and analyse the tax implications of these temporary or permanent assignments both for the company and for its shareholders or managers, based on their respective taxation countries, whether in Spain or otherwise. Failure to obtain said guidance could result in the generation of unwanted tax contingencies, and many clients are being forced to deal with these contingencies since the Spanish Tax Office has been looking for -and finding- the forgetfulness or omission of these presumed incomes.
YOUR EXCLUSIVE LIFESTYLE MAGAZINE IN MARBELLA AND SOTOGRANDE
To provide the best experiences, we use technologies like cookies to store and/or access device information. Consenting to these technologies will allow us to process data such as browsing behavior or unique IDs on this site. Not consenting or withdrawing consent, may adversely affect certain features and functions.
The technical storage or access is strictly necessary for the legitimate purpose of enabling the use of a specific service explicitly requested by the subscriber or user, or for the sole purpose of carrying out the transmission of a communication over an electronic communications network.
The technical storage or access is necessary for the legitimate purpose of storing preferences that are not requested by the subscriber or user.
The technical storage or access that is used exclusively for statistical purposes.The technical storage or access that is used exclusively for anonymous statistical purposes. Without a subpoena, voluntary compliance on the part of your Internet Service Provider, or additional records from a third party, information stored or retrieved for this purpose alone cannot usually be used to identify you.
The technical storage or access is required to create user profiles to send advertising, or to track the user on a website or across several websites for similar marketing purposes.