Transfer tax on the sale of Spanish real estate companies

Abstract

Indirect taxes levied on the transfer of real estate can sometimes make a real difference on the profitability of the transaction. In Spain, transfers of real estate may be subject to VAT in the case of entrepreneurial transactions (which is normally recoverable) or to non-recoverable transfer tax (6% or 7% depending on the Autonomous Community where the real estate is located) in the case of non-entrepreneurial transactions or where the transaction is VAT exempt (such as second transfers of real estate or the sale of rural land). Under certain circumstances, the VAT exemption can be waived so that recoverable VAT applies instead of unrecoverable transfer tax. The Tax Fraud Prevention Act, in force as of January 1 2007, has clarified many of those controversies by including in the wording of the Law some of the criteria already set out by the Spanish Administrative and Judicial Courts.