Property purchase private or S.L.

Is it worth using an S.L. when buying property on Mallorca?

There's no blanket answer to this – but it can be calculated. The Spanish S.L. (Sociedad Limitada, the limited-liability company form that comes closest to a German GmbH) pays on its profit as a pure property company throughout 25% corporation tax, because it is barred from the reduced rates for smaller companies, and anyone who later distributes the profit pays a further tax on top. Which properties are actually on offer on the island can be seen under Property on Mallorca. The calculator above shows you, using your own figures, how this adds up over the years compared with buying in your own name – there is no blanket answer, only your own calculation.

How the calculation works

So that you can trust the result without simply believing it blindly, here is the calculation chain in words – in the same order in which the calculator itself calculates.

The purchase

In the defined purchase block of this calculator, the same rates and fees apply to both private individuals and an S.L., because none of the register facts used differentiate according to the legal form of the buyer. For the private use considered here, the block comprises the property transfer tax ITP for existing properties, IVA and AJD for new builds, as well as notary and land registry fees. The calculator uses the same calculation for this in both columns and takes into account the fee reductions for residential properties. Above the tariffed value threshold, the additional notary fee is freely negotiable: the acquisition costs marked with ≥ are then a lower limit. Without the agreed amount, the depreciation basis, depreciation, corporation tax and total difference cannot be determined. Higher capitalised costs can reduce the ongoing tax; therefore the difference is not a blanket lower limit. This is a statement about this calculation; other purchase constellations and business deduction rights are not assessed by this.

How a property purchase on Mallorca practically proceeds — from reservation to notarisation — is described in the Property purchase process; here it is solely about the question of what one route or the other costs.

Only the S.L. additionally bears its own formation costs. If it is formed electronically, an officially fixed Arancel (the statutorily fixed fee for notaries and the Registro Mercantil, the Spanish commercial register) applies of €150 for the notary and €100 for the registration, each net plus 21% non-deductible IVA. This is the general electronic tariff route; the separate requirements for the lower tariff are not assumed here. In addition, there is the freely agreed formation advice as an entered total amount; the calculator does not add any further IVA to this. Legally, a share capital of only €1 – in the calculator, the default value is deliberately set higher, because a lower capital triggers an additional reserve requirement – more on that shortly. The capital contributed itself is not a cost item: it remains your wealth, just tied up in the company.

Year after year

Here the paths diverge more clearly. As a private individual, you pay for personal use a so-called Imputación – a flat-rate income tax on a notional usage value, even though no rent is actually received, assessed on the valor catastral (the official cadastral value, which forms the basis for several Spanish taxes) and declared via the Modelo 210 (the tax form non-residents use to declare Spanish income – more on this below). The full-year model takes into account all calendar days of the chosen tax year, including in a leap year. The reduced cadastral rate presupposes the specific revision condition of that tax year; the field help indicates the period recorded in the register. As a person resident in the EU or the EEA, you pay a reduced rate of 19%.

The S.L., by contrast, must have a rent attributed to it that corresponds to the open market – the arm's-length value – even if in reality less or nothing at all is paid: the company and the shareholder are treated as related parties, for whom the law mandatorily prescribes market prices. For depreciation, the calculator splits the purchase price, including capitalisable acquisition-related costs, according to the ratio of the building share to the total cadastral value (Art. 3.2 RIS; PGC, valuation standards 2 and 4). Included are ITP or non-deductible IVA, AJD, notary and land registry fees, as well as directly attributable lawyer, gestoría and estate agent costs. The allocation of advisory and brokerage fees depends on the specific service provided. From the arm's-length rent, it deducts the depreciation of this building share of the acquisition costs, up to a maximum of 2% per year – the statutory maximum rate applied by the calculator –, plus costs for bookkeeping and administration, and pays the corporation tax already mentioned on the remaining profit. The cumulative depreciation is capped at the known building base. If tax losses arise initially and, later, after depreciation ends, positive assessment bases occur, a loss carryforward under Art. 26 LIS may apply. Its offsetting is not modelled here; from this point onward, corporation tax, annual total and overall difference remain open. For the municipal business tax IAE (Impuesto sobre Actividades Económicas), the calculator only sets it to zero if you confirm the turnover exemption under €1,000,000 for all model years. This takes into account the statutory reference period, all activities and, where applicable, group turnover under Art. 82.1.c TRLRHL. If an entered annual rent reaches the threshold, IAE remains unknown in the model and the S.L. total remains open. The separate start-up exemption for the first two tax periods is therefore not examined.

The distribution calculation begins with your own figure for the annual result after corporate tax from the annual accounts or from the tax adviser, before the legal reserve calculated here. The tax-adjusted profit does not replace this figure. A negative annual result is entered with a minus sign; in the event of a loss, the modelled reserve allocation and distribution are zero. Under Art. 274.1 LSC, generally 10% of the annual profit must be set aside until the legal reserve reaches at least 20% of the share capital. In addition, under Art. 4.1 the special obligation of at least 20% applies, as long as capital and reserve together do not reach €3,000. The calculator starts with an empty reserve and takes the higher of the two allocations each year. This relationship is a derivation from both wordings, in particular „en todo caso“ in Art. 274.1, not a literal statutory formula. This is followed by the capital maintenance test under Art. 273.2 LSC: the entered equity from the approved accounts already includes the annual result. Below the share capital, the distribution is blocked; otherwise it is additionally limited to equity minus capital. Without equity, a planned distribution remains unresolved. National withholding tax under IRNR of 19% is levied on the gross distribution limited in this way; the double taxation agreement between Germany and Spain limits it under the model assumptions to 15%. The treaty cap replaces the higher national rate. If non-distribution is chosen, withholding tax and net inflow are zero, even if balance sheet figures are missing. If a distribution is planned, the amounts depending on it remain unknown without known figures. The calculable corporate tax remains visible as a partial amount.

With zero comparison years, both running period totals consist of zero euros. For this pure acquisition comparison, only acquisition and formation count; missing annual figures do not block it. Unknown formation advice and a notary fee still to be freely agreed remain relevant, however.

Wealth tax

How wealth tax applies to a property purchase in the first place is explained in the overview of wealth tax on property purchases; here it is only about the difference between the two routes.

Different valuation rules apply to the annual wealth tax. For direct ownership, under Art. 10 LIP the highest value among cadastral value, relevant administrative value and purchase price counts. If the administrative value is unknown, the private wealth tax, the full private total and the overall difference remain unknown. Only if it is established that no such administrative value exists can it be omitted from the valuation. For the S.L., the model assumes unaudited accounts and, under Art. 16.Uno LIP, compares nominal capital, book equity according to the last approved accounts, and capitalised average profit. The equity is taken from these accounts or from the tax adviser; the calculator does not invent a balance sheet. For the capitalisation, it uses the entered profit figure after corporate tax including the reserve allocations. Both figures remain constant in the nominal scenario; the model years used do not replace an actual three-year history. If one of the figures is missing, the S.L. wealth tax and the overall difference remain unknown.

The fact that a company stands in between doesn't exempt you from the tax. Non-listed shares in a company whose assets consist of 50% or more Spanish real estate are themselves deemed to be located in Spain; the double taxation agreement expressly allows Spain to tax them; and the exemption that Spanish law provides for business shareholdings does not apply to a company whose main activity is asset management. Which of the two routes regularly leads to the higher tax base is not stated by law – only entering your own figures will show you that.

Worked examples

Below the calculator you'll find worked-through examples with complete inputs. They are created according to the same rules described above and show how the individual items add up to a total sum – as guidance for the calculation method, not as a market figure for your case.

Special cases and common misconceptions

• The reduced corporation tax rates do not apply. Spain has reduced rates for smaller companies and for newly founded ones. For a pure property-holding company – a so-called entidad patrimonial, whose assets are predominantly not used for its own economic activity – these reduced rates are expressly excluded by law. It pays the general rate throughout.
• VAT on new-build purchases remains a cost to the company. The new-build purchase from the developer considered here is the first supply: IVA and AJD apply. The exemption under Art. 20.Uno.22º LIVA relates to second and subsequent supplies; there is therefore no such exemption available for a new build that could be waived. Under the model of private use by the shareholder, following the reasoning from Art. 95 LIVA there is no right to deduct input tax. The IVA thus remains a final cost burden for the company. The question of waiver under Art. 20.Dos LIVA belongs exclusively to a later second acquisition between businesses and depends there on the statutory requirements.
• The Spanish special tax on real estate held by non-resident entities does not affect an S.L. This special provision applies expressly only to entities based in a country or territory classified as a tax haven. An S.L. founded and resident in Spain does not fall within its personal scope in the first place.
• This calculator does not cover inheritance and gift. How the transfer to the next generation is taxed in the Balearics depends on entirely different rules; the basics can be found under Inheritance and gift of real estate in the Balearics. Whether a company shareholding is treated differently from the property itself in this respect is not examined by this calculator.
• An S.L. with genuine rental activity is a different case.Art. 5.1 LIS requires at least one person with an employment contract and full-time employment for the organisation of an economic letting activity. The classification as entidad patrimonial must additionally be examined under Art. 5.2 LIS on the basis of the composition of the assets and the average of the quarterly balance sheets. The full-time employee alone therefore does not rule out a patrimonial classification. This calculator only depicts the pure holding and self-use company.

The exit is not calculated

The calculator captures acquisition and ongoing charges. The following notes classify a later property or share sale from a legal perspective; its tax consequences are not part of the calculation.

If you sell directly, you sell a property. If you hold via an S.L., you can instead sell the shares – and the transfer of securities is in principle exempt from both VAT and transfer and stamp duty. However, this basic exemption has an explicit exception with a rebuttable presumption: if control is thereby obtained over a company whose assets consist of 50% or more of Spanish real estate not used for business purposes – control here meaning a shareholding of more than half, directly or indirectly – the law presumes an intention to circumvent tax. Rebuttable, but presumed nonetheless, not excluded. For a pure property S.L., as this calculator assumes, this case is likely to apply. This means neither that the share sale will certainly be taxed, nor that it will certainly remain tax-free – both blanket statements would be wrong.

Separately from this, the double taxation agreement governs the capital gain: it allows the state in which the property is located to tax gains from the sale of shares in a predominantly property-holding company. This is a taxing right, not a tax in itself – whether and how Spain actually levies it follows from Spanish domestic law, not from the agreement itself. Also deliberately not covered here is the dissolution of the company: for this calculator, no verified legal basis is available for that, and any statement on it would be speculative.

Deadlines and forms

As a private individual, you declare the annual imputación via Modelo 210, the central form used by non-residents to declare various Spanish income. The S.L., on the other hand, files an annual financial statement with the Registro Mercantil and additionally submits its own corporate tax return. This calculator deliberately does not state specific filing deadlines, because they have not been verified here with a source – if in doubt, ask your gestoría (the Spanish administrative office that handles official procedures and deadlines for you) or your tax adviser about this.

Legal basis and current status

The framework of this page automatically shows you the current legal status. The calculation is based on the following regulations:

• Corporate income tax, depreciation and transfer pricing: Art. 29.1, Art. 5.2, Art. 12.1.a) and Art. 18 of Ley 27/2014 (Spanish Corporate Income Tax Act).
• Wealth tax: Art. 4.Ocho, Art. 5.Uno.b), Art. 10 and Art. 16.Uno of Ley 19/1991 (Spanish Wealth Tax Act).
• Dividend taxation and special tax for non-residents: Art. 25.1.f) as well as Art. 40 to 43 of Real Decreto Legislativo 5/2004.
• Minimum capital, capital maintenance and reserve requirements of the S.L.: Art. 4.1, Art. 273.2 and Art. 274.1 of Real Decreto Legislativo 1/2010.
• Double taxation agreement Germany–Spain: Art. 10, Art. 13 and Art. 21.
• Transfer of shares in property-rich companies: Art. 338 of Ley 6/2023.
• Business tax IAE: Art. 82.1.c) of Real Decreto Legislativo 2/2004.
• VAT on real estate: Art. 20.Uno.22º, Art. 20.Dos and Art. 95 of Ley 37/1992 (Spanish VAT Act).

Related calculators

You can find out how high the purchase-related costs themselves are, regardless of the legal form, in the dedicated overview of acquisition costs. If you continue to use the property privately, it's worth taking a look at the annual imputed income tax on personal use via Modelo 210. How wealth tax is tiered in the Balearics is shown in the overview of Balearic wealth tax. If you sell the property as a natural person, you can use the capital gains tax calculator instead. It calculates the property sale, not the share sale. It also does not cover the sale of the property by an S.L. followed by a subsequent distribution.