Non-resident owners of real estate in Spain: tax implications of the bottom account tax | International Tax Review (120 characters)Non-resident owners of real estate in Spain: tax implications of the tax on dny accounts | International Tax Review

Under the property tax legislation in force until 2022, if the taxpayer was a non-resident, only shares in resident entities in Spain were taxable (i.e. non-residents were only taxed on assets and rights located in Spain).

There have, however, been cases where tax auditors have deemed shares in non-resident companies that owned real estate in Spain to be subject to property tax (WT).

This caused situations where the mere application by non-resident legal entities could avoid property taxation (WT was taxable if the non-resident was the direct owner of property located in Spain).

In response to this situation, Spanish lawmakers have amended the property tax legislation (effective December 28, 2022) to deem subject to property tax - as non-residents - shares in unincorporated legal entities (regardless of the location of the legal entity) if at least 50% of the legal entity's assets consist (directly or indirectly) of real estate located in Spain.

To calculate this 50% of the net value of assets will be replaced by their market value on the date of payment of the tax (December 31), except for assets corresponding to real estate assets, which must be replaced by the higher of the following values: cadastral value of the property; value determined or verified by the authorities for other tax purposes; or acquisition cost/construction cost.This change will apply to non-residents who are shareholders in legal entities that directly or indirectly have a significant amount of assets linked to real estate located in Spain, without it mattering whether these real estate assets are affected by business activities or whether there is any tax avoidance purpose.

Hence, it seems prudent for non-residents investing in unlisted entities with a large amount of real estate in Spain to review their investments to determine whether they are taxable. In addition, where a tax treaty exists, the potential impact of its provisions should be analyzed.