Petra Schmidt
Director of the Palma de Mallorca Office of Bové Montero y Asociados
It is very common for the purchase of real estate in Spain by non-resident individuals to be carried out through foreign entities, as these may entail a series of inheritance, property and tax advantages abroad.
This is the case of the German entities “GmbH & Co KG”, limited partnerships with legal, commercial and operational capacity in which the limited shareholder is the owner of the underlying assets. From a tax perspective, these entities may not be subject to income tax in Germany, and their income may be attributed for tax purposes to their shareholders or participants.
It should be recalled that, for the purposes of Personal Income Tax, Corporate Income Tax and Non-Resident Income Tax, the resolution of 6 February 2020 issued by the Directorate General of Taxes (“DGT”) recognises as entities in attribution of income those that (I) are not subject to personal income tax in the State of incorporation and that (II) the income generated by the entity is attributed for tax purposes to its shareholders or participants.
Given these situations, it is necessary to analyse which tax treatment German GmbH & Co KG entities have in Spain in order to determine how they are taxed under the Wealth Tax (“WT”).
For example, in situations where the GmbH & Co KG owns a property in Spain, the question arises whether the shareholder (non-resident in Spain) should be taxed on the basis of limited liability for WT. And, specifically, whether he should be taxed on (I) the ownership of the underlying assets of the German GmbH & Co KG, i.e., the real estate located in Spain, or on (II) the holding of shares in a non-resident entity where at least 50% of the assets are made up of real estate located in Spain. This means that the issue is whether or not the assets of the entity have to be disclosed.
In this regard, the binding resolution V0481-23 issued by the Tax Agency on 1 March 2023 in response to the consultation submitted by Bové Montero y Asociados sets out the criteria and confirms that the limited liability to be taxed for WT purposes would be for the ownership of the shares in the German entity and not for the underlying assets. Indeed, from the reading of this response, it seems that for WT purposes the key issue is not so much whether the entity is comparable to an entity in attribution of income, but rather whether the entity has legal personality or not. Therefore, if the foreign entity has legal personality, a priori the assets of the entity would not be disclosed, and it would be the entity’s own shares or interests which would be subject to taxation. This interpretation may be a relevant element when analysing the treatment for WT purposes of other foreign legal instruments, which are less known to the tax authorities in Spain.
The entry into force at the end of 2022 of the new clause in the WT Act, which enables certain real estate investment structures in Spain to be taxed, with limited tax liability, through foreign entities, has given rise to restructuring processes through GmbH & Co KG entities. For this reason, the issuance of this new binding resolution by the DGT contributes to greater legal certainty for many foreigners with an interest in the Spanish real estate market.
You can read the original article published in the paper version of Expansión.
You can read the original article published in the online version of Expansión.
