Tax on the Wealth of non-residents with indirect ownership of real estate: not applicable
The General Directorate of Taxation (DGT) has issued, on September 13, 2022, the binding resolution number V1947-22, which affects non-resident individuals in Spain who own real estate in this country indirectly, that is, through foreign entities. Through this resolution, the DGT confirms that the holding of shares or participations in non-resident entities, which directly or indirectly own real estate investments in Spain, does not generate taxation in Spain for Wealth Tax (IP).
In the reference resolution, the Consultant is a individual tax resident in Germany owner of 100% of the shares in a German entity which, through other non-resident entities, holds ownership of a property in Mallorca (ie, the applicant has indirect ownership of a property in Spain). Under this assumption, the DGT states that the applicant is not subject to the IP since he is not the (direct) owner of assets located in Spain.
This pronouncement is relevant since it provides greater legal certainty for many non-residents who own property in Spain through foreign entities. In cases in which the IP has been liquidated due to similar situations, the possibility of requesting the return of undue income and the corresponding late-payment interest should be analyzed.
In the past, the DGT had ruled otherwise, indicating that non-residents who indirectly own real estate in Spain should be taxed in Spain for the IP, when, for example, the real estate accounted for more than 50% of the assets of the society (remember in this case, among others, resolutions number V0093-16 and V1995-20).
We understood that this interpretation had no legal support since, although some Agreements to Avoid Double Taxation (CDI) granted Spain the power to tax the ownership of real estate through foreign entities, the Spanish internal regulations lacked the corresponding legal provision that would allow Spain to hold the indirect possession of real estate.
This was also understood by the Superior Court of Justice (TSJ) of the Balearic Islands, which in its judgment of December 3, 2020 concluded that “the natural person not residing in Spain, who is holder of a non-resident entity, is not subject to the Spanish IP by real obligation”.
Later, in 2021, the DGT took a turn and aligned itself with the interpretation of the TSJ. Thus, in resolution number V2070-21, the DGT stated that although the CDI “allows taxing in Spain, in accordance with its internal legislation, the part of the patrimony of the two consultants that was constituted for shares or participations in said British company, given that the assets of this entity consist of at least 50%, directly or indirectly, in real estate located in Spain, it would also be necessary for Spanish internal regulations to tax the shares or participations that they met the indicated requirements”.
Finally, in its resolution issued on September 13, 2022, the DGT reconfirms that natural persons who are holders of shares or participations in foreign entities that directly or indirectly own real estate in Spain, should not be taxed in Spain for the indirect possession of said properties.
Finally, we recommend being cautious and analyzing each case in detail, especially in those cases in which the direct or indirect holders of the properties located in Spain are foreign tax-transparent entities  ;(or semi-transparent), such as trusts, KGs or GmbH & German Co KGs, among others.
