How setting up a company for your property investment saves up to 45% on Madrid real estate taxes
Several property-investment publications have ranked Madrid as a Top 3 market because of its potential both for capital appreciation and high investment returns. This sounds tempting, but you have heard Madrid real estate taxes can be tricky. You want to pay the fair amount of taxes, but you don’t want to leave money on the table either.
In short, the trick is learning how to optimize the legal structure of your investment. In this article, we will cover the following topics:
- Should you buy a property in your name or create a company to purchase it?
- How much can I save by creating a company for my property investment?
- How do you set up a Spanish company?
This is a complex matter, so please keep in mind the following article is merely a summary, highlighting key tips. Please contact us to obtain a detailed analysis with a fiscal expert for your specific case.
- Should you buy in your name or create a company to buy the property?
This might be a question you did not think of. Obviously, the simplest way is to buy the property directly in your name. However, in many cases, it is not the optimal way to purchase Spanish property, either in terms of ease or taxes.
Here are simple criteria to help you decide if you should create a special company in Madrid to conduct your property investment:
- If you are from the EU:
- If the total value of the investment is under 500,000€, purchase the property in your name.
- If it’s over 500,000€, create a Spanish company to conduct your property investment.
- If you are not an EU national, we recommend you create a Spanish company to conduct your property investment regardless of the transaction price. We recommend hiring an expert to conduct a fiscal simulation of your specific case.
If you want to learn about other costs associated with buying a property in Madrid, we encourage you to have a look at Buying an apartment in Madrid- the real cost.
2. How much can I save in Madrid real estate taxes by creating a company for my property investment?
Simply put, when you acquire a property via a company, two main mechanisms ensure your taxes are lower than if you acquired the same property directly as an individual:
1. Corporate taxes on income & profits have a fixed rate, whereas individuals pay a progressive tax rate. In simpler terms, the bigger your investment, the more you will save if you invest in property through a Spanish company.
2. Companies can deduct more costs from their taxes than individuals. This has a significant impact on the final taxes you pay. All else held equal, higher costs mean lower profits which translates to less Madrid real estate taxes.
Also, Spain has a higher tax rate than for non-European nationals on rental income. It amounts to 24.75% of gross income. Furthermore, non-EU nationals cannot deduct costs.So how much can you save by creating a Spanish company to complete your Madrid property investment? If you are a non-European national you can pay 30 to 50% fewer taxes, which is clearly significant. You go from a tax rate of 25% of gross revenues (gross meaning before costs) to 10-15% of gross revenues. This means your investment can be up to 20% more profitable, particularly if you have a long-term investment strategy. Each year you save on Madrid real estate taxes increases your investment’s overall profitability.
3. With a little professional help, it is easy and cost effective to set up a company in Spain
How much does it cost to set up an S.L.?
S.L., or Sociedad de Responsabilidad Limitada, is a Spanish Limited Liability Company. This is typically the type of company you will need to create to serve as an investment vehicle. For the simplest case (one owner) this starts at 500€ + VAT. More complicated cases with more owners, more capital and/or more complex corporate structures can cost up 1000€ + VAT. This is inclusive of Notary fees– required for any Spanish transaction.
Please note: these fees are using Moving2Madrid’s recommended experts. We are focused on international property investors so not only can we achieve a better result, but our prices are some of the most economical in the market. Most international tax professionals will charge 2000-300€ for the equivalent. Importantly, they lack our process and expertise focused on international property investors. Don’t hesitate to contact us today to set up your S.L.
For investors wishing to buy more than 8 properties, or spend more than five million euros, Spain has special tax vehicles that allow you to optimize your tax payments even more. You can save up to 85% on your Madrid real estate taxes using one of these. For these specific cases, please contact us for information. This article applies to a standard company created to acquire a property.
What is the ongoing monthly cost of having an S.L.?
The main cost is tax management. Our partners charge 150€ per month for all quarterly and yearly declarations. Here again, you will experience cost savings if you stay within our trusted network with whom we have established our trustworthy process and negotiated special rates. International tax professionals charge, on average, 300-400€ per month for tax management.
How long does it take?
Creating a company in Spain only takes 18 days, once you have all the papers ready. In our experience, the entire process typically takes a month. Time is needed to answer customer questions, prepare the paperwork, discuss legal topics and finally complete the process at the notary. For instance, you will need to get official translations of most papers, which usually takes a bit of time.
What do you need?
In terms of paperwork, creating a company is not much more difficult than buying a property. We recommend you sign a power of attorney. This will enable you to return to your country feeling confident that your assets are safely managed. To learn more about Spanish power of attorney, and other legal matters, don’t hesitate to email us. We’re here to help!
Spanish real estate taxes are a complex topic. However, if you understand the intricacies you can save 30-50% on Madrid real estate taxes. The best way to do this is to set up a Spanish company and purchase the property through it. EU nationals will save money doing it this way if their transaction price is above 500€ because, in Spain, personal taxes are progressive. For non-EU nationals, the savings is even greater. This is because Spain has a higher tax rate than non-EU nationals on rental income. It amounts to 24.75% of gross income. Furthermore, non-EU nationals cannot deduct costs. We recommend all non-EU nationals to purchase Spanish property through a separate company.
If you want to avail yourself of these 30-50% savings, save on fees for professional services and determine the best option for you, please don’t hesitate to contact us or request a free consultation to see how our services can help you.