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Q&A March 2011

The 'IBI'

Q. I bought a flat in March 2010 and I understand that there is an annual tax levied on the ownership of property. However, as yet I have not received the tax bill corresponding to 2010. Am I obliged to pay this? Should I go to the city council to request a copy of it?

A. The tax on ownership you are referring to is known as the IBI or Impuesto de Bienes Inmuebles (Tax on Real Estate). It is an annual tax levied on all real estate property (flats, chalets, parking spaces etc.) and charged directly by the local council (ayuntamiento) to the titleholder of the property as of January 1 of that year. In this particular instance therefore, you will not be required to pay the IBI for 2010 as you did not purchase the flat until March of that year. The payment of the 2010 tax therefore will be the sole responsibility of the previous owner. From 2011 however, the tax should be sent by post directly to you and in your name. In order for this to happen, the council must be informed of the change in title of the property itself. In general, the obligation to do this corresponds to the notary who witnessed the signing of the deeds of purchase. In this case, you will not be required to pay the tax until the council sends you the bill for it. If you do not receive the bill on time and through no fault of your own, the council cannot oblige you to pay interest or a surcharge for late payment.

Limited Companies in Spain

Q. I am setting up a limited company and I believe that there are 2 different types of limited company in Spain: The S.A. and the S.L. I would like to keep things simple so could you let me know which of the 2 is less cumbersome.

A. In practice, the S.A. (Sociedad Anonima- Public Limited Company) and the S.L. (Sociedad Limitada-Private Liability Company) are very similar although there are certain instances where the control requirements for an S.L. are less rigorous. Some examples of these are as follows:

(i) In the case in which the incorporation of the S.L. is carried out, fully or partially, by means of a capital contribution in kind (e.g. the contribution of furniture, electronic equipment etc.) , the value of such does not require an independent surveyor (perito) appointed by the Commercial Registry (Registro Mercantil) as is the case with an S.A.. The same will apply with respect to contributions in kind made in the case of a capital increase.

(ii) In the case of capital increased through the off-setting of loans, there is no need to obtain an auditor's certificate for an S.L., whereas such a certificate is necessary for an S.A.

(iii) In the case of an S.A., certain resolutions which imply amendment of the by-laws (e.g. change of name, registered office, corporate purpose, etc.) must be announced in the press, whereas in the case of an S.L. such announcements are not required.

(iv) The calling of shareholders' meetings in an S.A. must necessarily be made through announcements in the press and the Official Gazette of the Commercial Registry, unless the meeting is held as "universal" (i.e. with attendance of all the shareholders). Such announcements are not required in an S.L. and calls of partners' meetings can be made by mail if so established in the by-laws of the company.

Apart from these examples, it should also be borne in mind that the S.A. requires a higher minimum capital than the S.L. (60,101.21€ as opposed to 3,005.06€).

Rental Income

Q. I receive rental income from a flat I own in Madrid and I would like to know how I need to treat this income in my annual income tax return. I believe there is now a reduction for such income. Could you clarify this?

A. Rental income comes under the category of Real Estate Income (Rendimientos de Capital Inmobiliario) and is declared as the total amount received from the tenant less deductible expenses. These expenses include all those that are necessarily incurred in the disposal of the flat for the purposes of generating rental income. Specifically these include:

• Interest payments on mortgage loans
• Taxes and rates paid on the property
• Bad debts (as established by law)
• Amounts paid for the repair and upkeep of the property
• Depreciation: this currently stands at 3% of the higher of the following 2 values a) The purchase price b) The cadastral value (valor catastral-a theoretical value established by the local council)

Once the net rental income has been calculated, it should be borne in mind that there is a further reduction of 50% of this net figure on rental income pertaining to houses (i.e. not offices or otherwise).