A few years ago we were advised to put property in Spain in the name of a British Limited Company, supposedly to avoid the payment of inheritance tax in Spain.
We did this transferring the property into the company as a part of its capital base.
The fact is that it is not working as every year there are many unexpected expenses such accounting, legal representation, etc.
For all these reasons, we want to divest ourselves and return the property back to our names as individuals. Should the British Limited Company sell us the property and what can you advise as the best course of action?
Dear reader, thank you for your inquiry.
WITHOUT commenting on the advice that was given to you and the convenience of acquiring real estate in Spain through companies, or as in your case, transfer existing assets to a company, we will focus on how your foreign limited company – owner of real estate in Spain, – could transfer the property to you, in the most convenient and tax efficient way.
Purchase: you ask in your enquiry about the possibility of the company selling the property to you. This possibility in principle may be inadequate for the following reasons:
1.- The sale of the property will attract a property transfer tax, which in the Valencian region is 10 per cent. Therefore, in addition to other expenses, this will be an additional 10 per cent tax on the value of the property to be paid by you as buyer.
2.- In addition, according to the money laundering regulations, you must prove that you have paid the agreed price for the property to the company, showing the transfer, the cheque given for it, etc. Or you need to prove how it would be paid.
If the Spanish property was incorporated into the foreign company by means of a capital base increase, by which you transferred the property in exchange for shares in the capital base, equivalent to the value of the property, the most appropriate form, from the company to return to you the property will be a reduction or decrease of the capital base, that is, to undo what was done before.
In this way, the foreign limited could agree to undertake a share capital reduction or decrease, and return the equity to the shareholders and partners, so, if the amount of the decrease is equal to the value of the property, it can be agreed that the property is transferred back to the partners and shareholders in payment of their rights.
The capital base reduction, is considered a corporate operation in Spain and as such it would attract a tax of 1 per cent, much lower than the 10 per cent transfer tax to be paid in the case of the sale, as mentioned above.
In addition, it would not be necessary for the shareholders who receive their property as a consequence of the capital base decrease, to pay any money as price, contrary to what would happen in the case of the sale.
Conclusion: We cannot advise you correctly, without studying your case in detail, but, generally speaking, it can be suggested, that this could be a tax efficient way, to divest and put the property back in your name, by arranging a capital base decrease, which would mean just 1 per cent in tax would be paid, instead of 10 per cent transfer tax if you undertake a property transfer, thus making a very considerable saving.
If you wish to acquire a property with a company in Spain or that your company transfer the property to you, contact us and we will help you.
The information provided in this article is not intended to be legal advice, but merely conveys general information related to legal issues.
Carlos Baos (Lawyer)
White & Baos
Tel: +34 966 426 185
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