I have heard a lot of talk about using a company structure to own property in Spain. I am talking about a Spanish Sl not an offshore structure.

Does anyone know anything about this and can someone explain the pros and cons and in which particular circumstances would it be advisable to do so.
I know for instance that you can avoid the 7%IVA on new build property, but what are the requiements that tax office put in place to prevent people from taking advantage of this?

You cannot avoid the 7% IVA (VAT), otherwise we´d all be setting up these companies in Spain. There is a way, but it is so hard and devious that the Spanish Tax Authorities -almost- always turn it down. So speaking in generel terms you cannot avoid it as it is logical.

Setting-up these companies is done to waive the inheritance tax, to sell the companies shares and avoid paying the Transfer Tax and all costs associated to it, to avoid the Capital Gain´s Tax etc... no one sets-up a company in Spain to avoid 7% VAT firts transmission of a developer.

It takes a case-by-case study really. But as a general rule-of-thumb your property must be worth 500 K Euros-600 K upwards (approx 333 k GBP) to offset the high running-costs these companies run (approx 1.333 GBP p.a. besides the set-up legal fees and costs).

Take this example:

http://www.scfgroup.com/foreign-property/s...structures.html

Now they offer to save you as much as 24.000 euros with a VAT reclaim setting-up a company. On the one hand this is dubious to say the least. On the other hand, they presume the property will be held for only a year or less I presume. If you do the maths, and you hold the property for 8 years (which is what most people do) those 24.000 euros they refund you are completely offset with the high running costs of the company:

Setting-up: 4.800 Euros (way too high IMHO)
1st year and subsequent years running costs: 2.800 E

Let´s say they hold the property for 8 years: that adds up to: 4.800 + 22.400 (=2.800x8)= 27.200 Euros.

Oh my, after 8 years you have a breaking-point in which the running costs have eaten-up what you've -theoretically- claimed as a VAT refund.

Constructive personal criticisms:

1. They calculate this example for a property worth 350 k E in Spain. This is financially irresponsible and unsound for it is the average price of properties sold-off to foreigners and the MINIMUM amount should be on the 500-600 K E range to off-set the high running costs of such a legal scheme. It's just Maths.
2. It is dubious, to say the least, they'll manage to refund that VAT, considering how the Tax Authorities are clamping-down as of late on these schemes. Tax Inspectors must not be underrated, ever.
3. This example takes for granted they'll sell-off the property on the short -term in which case you waive the possible tax exemptions allowed for holding the property for a number of years. The longer you keep the property the more you end up losing the VAT refund benefits.

So, If you enjoy sophisticated financial schemes designed for punters, well be my guest. I advice you to speak with a spanish lawyer/s first before entering into any such contract.

All the above is just my personal opinion and can therefore be rebutted. I take no responsibility on it and by no means try to discredit the company whose example I've taken, it is a mere constructive criticism/opinion.

Dear Benwes:

You cannot avoid 7% on new building property. The only way to avoid it is paying the ITP (Impuesto sobre Transmisiones Patrimoniales), but it is exactly the same (7%).

I am only refering to de VAT applicable to home property and no to other kind of properties such as offices, garages,.....

In this case, you will pay VAT when you buy them but you may get it back when you rent it.

If suggest you to get legal and tax advise in the case that you are interested in this kind of business.