You are a non-resident, and you are planning to invest in Spain. You have the intention to buy a property to conduct economic activity such as rental.

If that’s your case, you could either decide to buy the property as an individual or as a Spanish limited company.

BUY-TO-RENT AS AN INDIVIDUAL

• LESS BUROCRACY: as a company, you would need ongoing legal and accounting services to comply with annual obligations and potential Tax Office checks.
• LESS COMPLEXITY: process of purchase is much more straight-forward and avoids the complexity of corporate law.
• RENTAL INCOME TAX: if you are buying to rent, you would pay 24% on your gross income if you are non-EU tax resident or 19% on your net income if you are EU tax resident.
• CAPITAL GAIN TAX: you would be subject for payment of capital gain tax on the profit you make after the sale (19% on the net capital gain).

BUY-TO-RENT AS A SPANISH LIMITED COMPANY

• DEDUCTION OF EXPENSES: as a company based in Spain, you could offset expenses related to the rental regardless your tax residency.
• COMPLEX STRUCTURE: the process of purchase would be more complex as it is necessary to set up the company before. The company would need a loan from the shareholders to purchase the property. This loan could include an interest that would be also deductible as an expense.
• CAPITAL GAIN TAX: company could deduct all related expenses (management fees, interests of the loan, depreciation of the property, etc) and result in a nil capital gain.

If the property is intended to be your main or secondary residence, it may be simpler and more tax-efficient to buy as an individual.

However, if you plan to buy-to-rent, you would definitely need to consider purchase through  a Spanish limited company.

Starting from January 1, 2023, amendments to Article 93 of Spain’s Personal Income Tax Law introduce a special tax arrangement for individuals gaining Spanish tax residency due to moving to the country. This provision, which was modified through the third Final Provision of Law 28/2022, is intended to promote the startup ecosystem.

Under this regime, individuals who establish their tax residency in Spain through relocation have the option to pay non-resident income tax at a fixed rate of 24%. This arrangement applies for the tax year of relocation and the subsequent five tax years, provided specific conditions are met.

The eligibility criteria encompass several scenarios, including:

1.-Employment Contracts: Individuals who move due to an employment contract can avail this scheme. The inclusion of remote work through electronic means is highlighted, especially for individuals with the international teleworking visa.

2.-Directorship of Entities: Those acquiring the status of a director in an entity can also opt for this special regime, provided certain criteria are fulfilled.

3.-Entrepreneurial Activities: Engaging in entrepreneurial activities in Spain, as per the procedure outlined in the law, is also considered a qualifying factor.

4.-Highly Qualified Professionals: Individuals who perform economic activities benefiting startups or contribute to innovation activities, with a substantial portion of their income originating from these activities, are eligible.

Furthermore, individuals opting for this regime should not generate income categorized under a permanent establishment in Spanish territory, with certain exceptions. Family members, including spouses and children, can also benefit from this regime if they meet specific conditions.

Spouses and children of the primary taxpayer, as described earlier, also have the option to pay non-resident income tax while retaining their taxpayer status for personal income tax. This is subject to the following conditions:

1. They must move to Spanish territory either simultaneously with the primary taxpayer or later, provided the first tax period under the special scheme for the primary taxpayer has not concluded.
2. They need to acquire tax residency in Spain.
3. They should meet the conditions outlined in points (a) and (c) of the previous section.
4. The total taxable bases of these individuals across each tax period under the special system should be lower than the taxable base of the primary taxpayer mentioned earlier.

This special scheme is applicable for consecutive tax periods if the aforementioned conditions are satisfied, and it also applies to the primary taxpayer as previously discussed.

It’s important to note that those under this regime are not classified as residents for the purpose of applying double taxation agreements. They are only subject to taxation for income derived from Spanish sources.

The process of joining, leaving, or being excluded from this special regime involves the submission of Form 149, accompanied by relevant documentation as specified in the Income Tax Regulation. Taxpayers choosing this option should file a distinct personal income tax return using Form 151 tailored to the regime’s specifics.

In terms of withholding taxes and interim personal income tax (IRPF) payments, the rate is fixed at 24% for earned income. However, when a single payer’s payments for work exceed €600,000 in a year, the applicable withholding rate on the excess aligns with the current accrual year’s rate of 45%.

This amendment reduces the previous requirement of non-residence in Spain to five years and extends the opportunity to avail the special regime to new categories of individuals, including teleworkers, entrepreneurs, professionals, and their families. This updated framework introduces a distinction between the main taxpayer and associated family members within the regime’s application periods.