Buying rental property personally or through a company in Spain
As a rental portfolio grows, the question comes up: do I keep buying in my own name or set up a company? The answer depends on how much you earn, what you will do with the profits and how much the portfolio will grow. There is no option that is best for everyone, and a badly planned change can be expensive. This guide covers Spanish tax residents; other countries have their own rules.
- As an individual, rental income is taxed in IRPF at your marginal rate, with reductions if it is the tenant's main home.
- A company pays Corporate Income Tax; when it distributes profits, you also pay IRPF on the dividends.
- A company mainly pays off if you reinvest profits instead of distributing them.
- It has fixed costs (accounting, annual accounts) and loses some advantages available to individuals.
- Transferring properties you already own to a company has a tax cost: plan before buying.
Individual: the simple route
The properties are in your name. The net rental return is added to your general IRPF base and taxed at your marginal rate, which depends on your total income and region. If you rent as a main home, you can apply reductions on the net return. See how rental income is taxed in Spain.
Advantages: no structure costs, no company accounting and access to those reductions. Drawback: with high income, the marginal rate can be high.
Company: when it helps
A company is taxed on its profits under Corporate Income Tax, at a flat rate usually below the top IRPF marginal rate. But that money belongs to the company: to reach you it must be distributed as dividends, which are taxed in your IRPF as savings income.
That is why a company makes more sense when you reinvest profits in new purchases, repayments or improvements, and less when you need to live off the rents.
An example to understand the effect
Assume €20,000 of annual net rental return. For illustration only, with simplified assumptions:
- Individual, with a 50% reduction and a 37% marginal rate: about €3,700 of tax.
- Company, at 25% Corporate Income Tax: €5,000. If you also distribute the remaining €15,000 as dividends at an average of 20%: another €3,000. Total, about €8,000.
In this case the individual route wins, mainly because of the main-home reduction. The company gets closer or wins when there is no reduction (seasonal lets or commercial premises), when the marginal rate is very high or when you do not distribute profits.
Financing and practical aspects
- Mortgages: lenders assess companies with business criteria (accounts, track record) and often require a personal guarantee from the shareholder.
- Costs: incorporation, accounting, taxes and filing accounts every year.
- Holding company: a company that only rents property without a minimum business structure may receive less favourable tax treatment in some respects.
- Inheritance: company shares can simplify management and division among heirs, but with their own tax rules.
If you already own properties personally
Contributing them to a company counts as a transfer: it may trigger a capital gain in your IRPF, transfer taxes and the municipal plusvalía tax. Special regimes can defer part of this tax in certain cases, but they have specific requirements. That is why the structure is ideally decided before buying.
Frequently asked questions
Should I use a company for my rental flats in Spain?
It usually suits large portfolios where you reinvest profits and do not apply main-home reductions. With one or two flats, or if you live off the rents, owning personally is simpler and often cheaper.
Can companies apply the main-home rental reduction?
No. That reduction only exists in the personal income tax of individuals.
How much does running a company cost?
Incorporation costs plus, every year, accounting, taxes and filing accounts. The amount depends on volume and whether you use an adviser.
Can I transfer my flats to a company tax-free?
In general, contributing properties has a tax cost. Some special regimes allow part of it to be deferred in specific cases, with prior advice.