We have received lately several queries from clients asking about the possibility of transferring their properties in Spain into societies from their own country, thinking about selling or inherit shares instead of the property instead.
The whole procedure to do so would have the following steps:
1.) The foreign society will have to apply at the Spanish Tax Office for a Tax Identification Number so that the deed where the transferring is accomplished can be registered at the Register Land Property. This Tax Identification Number starts with letter N, and why is this important? Because according with the Spanish tax legislation, Tax Identification Numbers that starts with N (among others) will need to obtain a electronic certificates that identifies those entities with the Tax Office, as the Tax Office won´t sent letters in paper to these entities to notify them anything, but the Tax Office will leave them at the electronic box office previously created either by the entity or the Tax office. You can only enter at this mailbox if you have the electronic signature granted by the Tax Office. This is the reason why the letter of the Tax Identification Number is important.
2.) At the moment you transfer the property into the society, the member of the society that transfer the good, according the tax legislation, will have a capital gain or loss that will have to be declared with form 210 and the main important thing: the society that receives the property will have to practice the 3% retention on the value of the good and pay it to the Tax Office through form 211. I understand this has to be done, as the tax law foresees the exception of the 3% retention when you transfer a property into a society that is consider RESIDENT IN SPAIN. As these societies we are talking about are NOT resident in Spain, the exception doesn´t cover them.
3.) Once the property has been transfer into the society, then the former owner stops fulfilling the form 210 every year in order to pay the non-resident tax that comes from the ownership of a property, but the society should make form 213, that usually is tax free, but only, and only if you fulfil it and submit to the Tax office. If not, the tax has to be paid in case you get caught by the Tax office.
4.) The way to transfer the property should be an ampliation of the capital of the society. Making a free donation is pretty much the same, as the Spanish General Plan of Accountancy foresees that a donation of the members of a society to the same society is not an income for it, but an ampliation of its own funds, including the capital of the society.
5.) The point is that in Spain these kinds of operations where a real estate good is involve could be subjected to two possible taxes: Stamp Duty Tax or the Tax over societies Capital, both of 1% over the price of the property. The operations of ampliation of capital of societies are exempted of this 1% tax, but if the local authorities considered that the operation is not subjected to Capital Tax in Spain, because of the international rules of conexions of the tax, might consider that th operation is then subjected to Stamp Duty Tax, which is a tax that has no exemption, so the society that received the real estate property would have to pay the 1% over the value of the property.
6.) And finally once the property has been transferred into the society, the transferring or the inheriting of the shares of the society that has the property, are both operations that would have to pay taxes in Spain, but it is completly true that as those operations don´t have to be registered at the Spanish Land Register or any other kind of registered, and eventually will take place at public deeds granted outside Spain in presence of foreign Notaries, if so, then, the Spanish Tax Office won´t have any notice about it and it will be impossible for it to control it. So, there you have the tax saving or tax fraud, as you might prefer to call it.
Best regards,
Antonio Robles Jara
Solicitor of Serveco Asesores
antoniojara@serveco.es