Taxation on the Sale of Real Estate by a Company: Key Taxes and Accounting Implications

 

 

Selling real estate through a company involves tax implications that differ significantly from those faced by private individuals. If you're managing the sale of a property owned by a corporation or legal entity, it's essential to understand what taxes apply, how they're calculated, and what strategies can help reduce the tax burden.

In this guide, we’ll explain how real estate sales are taxed when carried out by a company, which taxes are involved, what expenses to expect, and how to approach the operation from a strategic fiscal perspective.

 

How Is the Sale of Real Estate by a Company Taxed?

 

Unlike individuals, who are taxed under the Personal Income Tax (IRPF in Spain), companies are taxed through the Corporate Income Tax (Impuesto sobre Sociedades). This distinction has several key implications:

 

Main Tax Characteristics:

• * Flat tax rate of 25%: Corporate profits, including capital gains from property sales, are taxed at a standard rate of 25%, regardless of the profit amount.
• * No progressive brackets: Unlike individual income tax, the corporate rate is not progressive.
• * No exemption for primary residences: Exemptions applicable to private homeowners, such as those for primary residences, do not apply to legal entities.
• * Offsetting past losses: Companies can reduce their taxable base by offsetting losses from previous fiscal years, minimizing the effective tax burden.
• * Accounting value is key: The gain or loss is calculated based on the property's accounting value. Accurate and updated accounting records are essential to correctly assess the tax impact.

 

Costs Associated with Selling Real Estate as a Company

 

Whether the seller is an individual or a company, property sales involve certain transaction costs. Understanding and accounting for these costs is vital when evaluating the profitability of the sale.

 

Common Documentation and Expenses:

• * Property registry excerpt (nota simple): Verifies ownership and legal encumbrances. Can be requested from the Land Registry.
• * Energy efficiency certificate: Mandatory for all property sales; pricing depends on the property’s size and features.
• * Occupancy certificate (cédula de habitabilidad)**: Required in some Spanish regions; costs typically range from €70 to €150.
• * Notary fees: Generally paid by the seller; fees range between €600 and €1,200 depending on the property value.
• * Real estate agency fees: If a real estate agency is involved, the seller typically pays a commission of 3% to 5% of the sale price.

 

Corporate Income Tax and Real Estate Sales

 

The Corporate Income Tax is the primary tax applicable to real estate sales conducted by companies. The capital gain or loss is calculated as the difference between the sale price and the property's book value (accounting value), after deducting transaction-related expenses.

 

Practical Example of Real Estate Taxation for Companies:

 

Let’s consider a simplified case:

• * A company purchased a property for €200,000 and later sold it for €250,000.
• * The total gain is €50,000.
• * If €2,000 in transaction-related expenses are deducted, the net taxable gain is €48,000.
• * Applying the standard 25% corporate tax rate results in a tax liability of €12,000.

Item	Amount
Sale Price	€250,000
Purchase Price	€200,000
Transaction Costs (notary, fees)	€2,000
Net Gain	€48,000
Corporate Income Tax (25%)	€12,000

 

Municipal Capital Gains Tax (Plusvalía Municipal)

 

In addition to corporate income tax, companies must also pay the municipal capital gains tax, or Plusvalía Municipal. This is a local tax levied on the increase in value of urban land since the last ownership transfer.

 

• * Who collects it? The local city council (Ayuntamiento) where the property is located.
• * Can it be avoided? Yes, if you can demonstrate that the land has not increased in value, you may qualify for an exemption—provided certain conditions are met.

 

 

Additional Tax Considerations for Company-Owned Real Estate Sales

 

Certain conditions can affect how the sale is taxed:

 

• * Amortization adjustments: If the property was used for the company’s business operations, depreciation must be factored in.
• * VAT on the sale: In some cases—particularly when the company makes significant improvements or acts as a property developer—the sale may be subject to VAT. In that scenario, the seller must issue an invoice with VAT and declare it accordingly.

 

Strategies to Optimize Taxation When Selling Real Estate Through a Company

 

Before closing a sale, companies should consider the following strategies to reduce tax exposure:

 

• * Offsetting prior losses: Use previous years' tax losses to lower the current taxable base.
• * Reinvesting in business assets: Consider reinvesting the proceeds in assets tied to your company’s core business.
• * Accurate property valuation: Ensure the property’s book value reflects its real condition and depreciation to avoid overestimating taxable gains.

 

Conclusion

Selling real estate through a company involves tax complexities that differ substantially from individual transactions. Understanding the role of corporate income tax, accounting values, and local taxes such as the plusvalía municipal is essential to manage the transaction effectively.

 

Proper fiscal planning, combined with professional tax advice, can significantly increase your net gain. If your company is planning to sell a property, consult a real estate tax expert to ensure compliance and maximize profitability.