Buigas (Spain) Article: New Event of Taxation for Real Obligation in Wealth Tax. Holdings in Non-Resident Entities Whose Assets Consist Mainly of Real Estate Located in Spain

In December, 28th 2022 the Law 19/1991, of June 6th, of Wealth Tax was amended by introducing a new paragraph in its article 5. Uno. b) in relation to taxable person subject to a real obligation to contribute.

Until this amendment, such article provided that any non-Spanish resident individual is a taxable person by virtue of real obligation in respect of the assets and rights they hold when these are located, may be exercised or must be fulfilled within the Spanish territory, excluding, to such purposes, holdings in non-resident entities whose assets consist mainly of real estate located in Spain, as stated by the Directorate General for Taxation in several resolutions.

However, this amendment sets an important change in criteria by establishing that it would be deemed as located in the Spanish territory, securities representing equity interests in any type of entity, not traded on organized markets, which assets of real estate located in Spain are made up at least of 50 per cent, directly or indirectly. This means that if a non-resident individual owns a holding in a non-resident entity whose assets consist mainly of real estate located in Spain, he or she will be subject to tax on the basis of a real obligation to contribute.

In order to carry out the valuation and to determine whether the value of the real estate located in Spain exceeds at least 50% of the total value of all the assets of the company, the rule provides that the net book values of all the assets recorded will be replaced for their respective market values on the date on which the tax accrues (31 December). However, when it comes to real estate, the book values will be substituted by applying the special rules of article 10 of the Wealth Tax Law. In particular, this article establishes that real estate shall be valued at the higher of the following values:

  • Cadastral value of the property
  • Acquisition value
  • Value determined or ascertained by the tax administration for the purpose of other taxes

The measure applies from fiscal year 2022.

The information contained in this note should not in itself be considered as specific advice on the matter under discussion, but only as a first approach to the subject matter, and it is therefore advisable that the recipients of this note obtain professional advice on their specific case before taking specific measures or actions.