Real estate investment in Spain by non-residents raises an issue that is often underestimated in practice: the tax structure behind the investment.

Before investing, it is important to determine the most appropriate structure:

  • As an individual
    • Through a Spanish company
    • Through a foreign company

Each option has different implications in terms of:

  • Annual taxation
    • Deductibility of expenses
    • Wealth Tax
    • Exit strategy
    • Inheritance planning

Choosing between investing as an individual, through a Spanish company or via a foreign entity is not tax neutral. It has a direct impact not only on ongoing taxation, but also on the tax treatment of future disposals and intergenerational transfers.

Annual taxation

From a Non-Resident Income Tax (IRNR) perspective, taxation varies significantly depending on the investor’s tax residency and the structure used. While non-EU individuals are taxed at 24% on rental income with no (current) ability to deduct expenses, a Spanish company may allow for greater optimization of the taxable base through the deduction of business-related costs.

However, corporate structures are not without risk. The Spanish Tax Authorities have been increasingly scrutinizing situations where properties are used personally by shareholders or directors without a genuine economic activity, which may lead to significant tax reassessments.

Risk of tax residency

It is also important to consider the risk that the Spanish Tax Authorities may challenge the investor’s tax residency, particularly where the center of economic interests is deemed to be in Spain due to a significant real estate portfolio and related income.

Wealth Tax

Wealth taxation also requires specific analysis. Liability to Wealth Tax depends not only on direct ownership of the property, but also on the indirect investment structure. Shares in entities (including foreign companies) may be subject to taxation in Spain where more than 50% of their assets consist of Spanish real estate.

In such cases, it may be preferable for the properties not to be held personally or through a Spanish company, but instead to be held within a foreign company where the non-resident also holds other higher-value assets.

Future sales

From a disposal perspective, the tax treatment may also differ significantly. A direct sale of the property by a non-resident is subject to Spanish taxation at 19% (EU/EEA residents) or 24%, together with the standard 3% withholding.

By contrast, the sale of shares avoids both this withholding and taxes such as the municipal capital gains tax, which does not apply to share transfers. However, in most cases, the gain would be taxed at 25%, higher than the 19% rate applicable to EU-resident individuals.

Inheritance and Gift Tax

From an inheritance planning perspective, the choice of investment vehicle (Spanish or foreign company) may have significant implications for Inheritance and Gift Tax, and in certain international structures it may even allow for taxation in Spain to be mitigated, particularly where heirs are not Spanish tax residents.

Other considerations

Finally, it should not be overlooked that the use of foreign companies often involves greater administrative complexity: obtaining a tax identification number (NIF), appointing a tax representative, complying with filing obligations, and potential operational frictions in banking and legal processes.

In this context, upfront tax planning is essential. The goal is not only short-term optimization, but the design of a structure aligned with the use of the property, the investment horizon and the investor’s overall wealth strategy.

Experience shows that decisions made without a comprehensive tax analysis covering all current and future tax implications may lead to significant inefficiencies or avoidable risks. Conversely, proper structuring from the outset ensures both legal certainty and tax efficiency.

In an increasingly demanding international tax environment, being proactive is no longer a competitive advantage, but a necessity. At addwill, our International Tax team will be pleased to assist you with these matters.