07 Feb IS IT GOOD IDEA TO CONTRIBUTE A PROPERTY TO A FOREIGN COMPANY TO AVOID THE INHERITANCE TAX IN SPAIN?
Well, with some exceptions of specific and minority cases, it’s not a good idea at all. This advice is heard on more than one occasion and almost always as a suggestion of foreign lawyers who do not have enough preparation to address the issue and its legal consequences in Spain or by those others who may have that preparation, but do not hesitate to be seeking their own benefit even if this may result in medium- and long-term consequences detrimental to the interests of their customers.
But the truth is that in the event that one of the owners of the company dies and his beneficiaries inherit the shares of the foreign company, that does not remove the subjection of that transfer by inheritance to the Spanish laws on taxation of the goods and rights, whatever their nature, when they were located, exercised or had to be fulfilled in Spanish territory. This category includes shares of a company that merely owns goods in Spain.
And if the purpose is that before they die the shareholders of the foreign company thus constituted, they transmit outside Spain the shares of the foreign company to their heirs, such transfer nor would it be exempt from taxing in Spain, since in most cases such transmissions are considered to have been made with the pretence of avoiding the payment of the taxes that would have been levied on the transfer of the properties owned by the entities and it shall be understood, unless there is evidence to the contrary, that such action is taken in order to circumvent the payment of the tax corresponding to the transfer of immovable property. Here are the cases the law says are directly deemed to be performed with such aim:
(a) Where control is obtained from an entity whose assets are formed by at least 50 per cent of properties based in Spain that are not affected by business or professional activities, or when, once that control has been obtained, the share of participation in it increases.
b) Where control is obtained from an entity whose assets include securities that allow it to exercise control in another entity whose assets are made up of at least 50 per cent of properties based in Spain that are not affected by business activities or professional, or when, once such control has been obtained, the share of it increases.
c) Where the securities transferred have been received for the contributions of immovable property made on the occasion of the establishment of companies or the extension of their share capital, provided that such assets are not affected by business activities and between the date of contribution and the date of transmission, a period of three years would not have elapsed.