Special Tax Regime for companies providing residential leasing in Spain

It´s not a secret that property market boom in Spain has passed away. Prices are no longer rising, in real terms at least. Spanish property prices are 197% higher than a decade ago (that is, almost triple), and the average Spanish home now costs 7.5 times average earnings of an employee. In the other hand, Spain received during the period 2003-2007 nearly one million immigrants, and it´s assumed that nearly other 600.000 remain unregistered in Spanish territory. Total Population has increased from 39 million to 44 million in a decade. Difficulties to receive mortgage loans, and lack of affordable housing is creating social problems and resentments, and housing is now one of the top 3 voter concerns in Spain. Since 2004, the Government has been promoting leasing market as solution for this problem. One of this measures, it´s the special corporate income tax regime for companies in the residential leasing business, as described in article 53 and 54 of the Spanish Corporate Income Tax Law.

Companies may benefit from this special regime if:

- Offer ten o more houses for leasing, during a whole tax year.

- Only houses with 135m2 maximum built surface are computable.

- Any house to be considered under this regime must be offered for leasing continuously during seven tax years. This requires a separate account for every unit, as benefits arising from any house failing to comply with the seven years formula must be proportionally returned.

- The company may carry out other businesses, but 55% or more of the total income must be derived from leasing activities. This requires a separate account for every business and an adequate distribution of overhead expenses.

The main benefit of the regime is an 85% discount on the general corporate tax rate, on the income arising from above activities. For 2008, this means an effective rate of 4.87% and double tax relief on dividends is still applicable.  Tax advantages combined with the growing leasing market in Spain makes this regime quite an opportunity.