Buying real estate in Spain: company vs. private individual.
The purchase of a property from the primary market in Spain by a company differs from a purchase by a private individual mainly in terms of taxation, depreciation and tax deductibility.
Let´s begin by explaining the word depreciation. Depreciation expense is a way of accounting for the value of consumable assets (like real estate, machinery, cars) by systematically reducing their value over the years. In practice, this means that a company or an individual can ´spread´the cost of purchasing a particular good over many years, thereby lowering the tax base.
How does depreciation work? The phenomenon involves accounting for the cost of a prchase in book terms over the expected useful life of the asset. For example, if a company buys a building for €1 million and assumes that it will use it for 40 years, each year it ´deducts´a portion of that value (in this example, €25.000 per year) in expenses.
In Spain, real estates can be depreciated if it is used for commercial purpose (e. g. rental or business).
And now, the main differences between buying real estate for a company and a private individual:
1. VAT (IVA)
– individual: when buying a property on the primary market by an individual, VAT (IVA) of 10% applies.
– company: companies also pay 10% VAT when buying a property on the primary market. However, if the company uses the property for business activities (such as renting), in some cases it can deduct this tax from its tax liability.
2. Stamp duty (ADJ)
– individual: a buyer in the primary market also pays the so-called stamp duty (AJD), which ranges from 0.5% to 2% of the value of the property (depending on the region)
– company: companies are also required to pay stamp duty, but may have a broader ability to deduct it as a business expense.
3. Depreciation costs
– individual: an individual cannot depreciate property unless they use it for rent, in which case depreciation works as a deductible business expense.
– company: companies can depreciate the property on a regular basis, which lowers their annual tax liability and allows them to better account for the costs associated with the property.
4. Income tax (IRPF) vs. personal income tax (IS)
– individual: profits from the sale of real estate is subject to corporate income tax (IS), which is 25%. Companies can also include property maintenance expenses as a deductible expense, and if sold, depreciation can reduce the tax base.
5. Differences in inheritance law and capital regulations
– individual: property purchased by an individual is directly related to his personal estate and is subject to inheritance under inheritance law.
– company: real estate owned by a company is subject to different rules, including rules for heirs of company shares, which sometimes guves more flexibility in succession planningand reduces inheritance formalities.
Summary: Buying real estate in Spain: company vs. private individual.
Buying real estate for company in Spain can be tax advantageous if the property is used for commercial purposes. Howeve, the choice of the form of purchase depends on the purpose of the property, investment plans and individual tax situation.
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