Madrid wants to make non-residents pay in future if they hold real estate in Spain via foreign companies
The tax wheel on Mallorca continues to turn. The Spanish central government in Madrid is planning to amend the wealth tax law. According to this, non-residents can become liable for wealth tax if they hold shares in foreign companies with real estate property in Spain. It is highly likely that the reform will come into force before the end of the year and will then already apply for 2022.
What does the planned amendment to the law provide for? In mid-November, an amendment to the Wealth Tax Law was passed in Parliament that would transfer the wealth tax allocation away from the company to the shareholder. This tax transparency of certain corporate structures already applies to certain taxes such as income tax for non-residents.
Only on 13 September this year, the Ministerial Department of Taxes (DGT) had created legal certainty by issuing an instruction. This stated that non-residents who are owners of a foreign company are not subject to Spanish taxation. In doing so, the DGT had followed the opinion of the Supreme Court of the Balearic Islands, which had reached the same decision in December 2020. With the law reform, however, this long-awaited instruction would already be obsolete again.
One possible solution: the acquisition of real estate or the restructuring of existing ownership via a German limited partnership with a commercial character, in whose balance sheet Spanish real estate accounts for less than 50 percent of the assets. This is the recommendation of the tax and legal firm PlattesGroup for non-residents who are interested in a house or flat on Mallorca. On the one hand, the interposition of a partnership avoids the serious problem of “hidden profit distribution” in Germany, and on the other hand, one achieves higher legal protection through the regulations in the double taxation agreement. In addition, there are numerous advantages under civil law and structuring options offered by a limited partnership for private asset management.
This article was prepared by our partner, the Palma de Mallorca-based tax and legal firm PlattesGroup.