International company structures established in decades gone by to help wealthy owners of property in Spain avoid tax are now a ticking time-bomb as the Spanish tax authorities set their sights on them.
“International company structures, with some owned by double or triple vehicles involving a Spanish company belonging to a foreign company and, in many cases, a Trust on top, were the arrangement of choice recommended by leading international tax advisory firms to wealthy investors from the 70s to the 2000s,” explains Fernando Del Canto. “Needless to say, those same firms would rather not talk about the problem today.” His firm, cross-border tax specialists Del Canto Chambers with offices in London and Madrid, estimate that more than 5,000 private properties in Spain are owned using international company structures.
International company structures were set up to avoid or minimise tax in Spain, and facilitate change of ownership / inheritance. It goes without saying that most of the properties owned through a company structure are worth a million Euro or more, in most cases two or three million Euro and up. Company structures come at a cost, so the potential tax savings have to be significant for the structure to make financial sense.
If international company structures are used to avoid taxes on a valuable asset, that obviously makes them interesting to the tax inspector. With public finances under pressure, Spain is looking hard at tax avoidance schemes, just like other Western countries, and high value properties owned by international companies are now thought to be a prime target for the Spanish tax authorities, who are notoriously high-handed, and difficult to deal with.
“Spanish tax inspectors shoot first and ask questions later,” explains Fernando Del Canto. “They are busy investigating these structures in places like the Costa del Sol, and I’ve even seen them stake out luxury resorts like Sotogrande to get evidence of undeclared rentals. They slap down heavy penalties on flimsy grounds and hope that wealthy foreigners will just pay up without a fight. Wealthy foreigners with valuable assets in Spain are seen as soft targets.”
If you own a property in Spain via an international company structure set up in decades gone by you should consider getting a tax compliance check-up done to see what kinds of risks, if any, you are running. You don’t want to wait until the bomb explodes with a tax inspection. The best defense is to be well prepared, and a well-prepared response guided by experts will send a strong message to the tax authorities that you are not a soft target, which is half the battle.
Del Canto Chambers, with offices in Madrid and London, are cross-border Spanish and international tax specialists with unique experience in sorting out, or heading off, tax liabilities for high-value properties in Spain. Find out more and get in touch for a free report on your tax exposure, or to deal with a tax inspection, by clicking the link below
Article published in Spanish Property Insight