3.2.5. Deductible taxes

Creating a Company (SL)

If you are buying a property in Mallorca primarily as an investment, it may be a cost-effective solution to create a company (SL), and pay off the cost of forming and accounting for the SL. This will depend in part on the value of the property or properties you are purchasing and on your future plans.

The question of whether you become a legal resident in Spain and whether you decide to form a company (SL) or not, should be an integral part of your international tax plan, especially if you are intending to live or work in more than one country.

As a non resident in Mallorca without a SL company you will be paying 25% on any earnings you make on your property, (ie: summer rentals) and will not be able to offset costs (refurbishment etc) against your tax bill. If you sell the property, you will have to pay 3% on the property.

As a non resident with an SL company your property tax payments will remain the same and yearly corporate tax is 25% of net profit after deducting your costs, which can include refurbishing, property management, SL administration and costs, property tax and maintenance. Directors and shareholders can be either residents or non residents.

If you then sell your property, property tax and VAT can be deducted or claimed back from the company. Profit from the sale will go back into the company, paying no tax on the sale. You have 5 years in which to pay Capital Gains Tax or you can reinvest the money in a another business or property.

The Taxes applicable to Corporate Property Owners in Spain are:

VAT - Form 220 and Form 303, Form 111 for withholding tax. Jan 1st-June 30th of the following year.

The corporate tax rate is around 30%.

All expenses, property tax, refurbishment, utilities and property management costs are tax deductible.

In order to maintain an SL company there will be accounting obligations and costs.

Note that the tax percentage you pay will vary depending on the value of your property and company.


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