When you dive into the world of real estate investing, you may be wondering if it would be beneficial to set up a company to invest in real estate. This strategy, especially through a limited company, could be a viable option if you are thinking about investing seriously and for the long term. In this article, we will dive into the particularities of this practice and explore the patrimonial, tax and practical blessings it could offer.
What does it mean to invest in real estate through a company?
Definition of real estate and limited company
In simple terms, a property is an asset or property that cannot be moved, for example, a house or a piece of land. As for a limited company, it is a type of company that protects its owners from personal liability for the company’s debts.
Corporate purpose: Create a company to invest
In the commercial register, a company has to declare its ‘corporate purpose’, that is, the purpose for which it was created. In the case of a company created to invest in real estate, this will be its main purpose.
The process of investing in real estate through a company
Investing in real estate through a company involves several steps. First, you must create a company, which will be registered in the commercial register. This company then acquires real estate, either through purchase or construction. These properties can generate income through renting or selling.
Types of companies for investing in real estate
Real estate investment company
A real estate investment trust (REIT) is a type of company that is primarily used to invest in rental properties. It is an investment vehicle that provides regular income to investors through rentals and takes advantage of special tax benefits.
Create a limited company to invest in real estate
A limited company is another option for investing in real estate. With limited liability for company debts and lower taxes on profits than individuals, a limited company can be an attractive option for investors.
Comparison: Limited Company vs Real Estate Investment Company
Each type of company has its advantages and disadvantages. A REIT generates regular income through rent and offers tax advantages, but has higher administrative costs and complexity. On the other hand, a limited company has lower administration costs and greater flexibility but may have a higher tax rate on profits.
Advantages of buying a home through a limited company
Tax benefits: personal income tax and corporate tax
Compared to an individual, a limited company pays less capital gains tax when selling a property. In addition, a limited company can deduct property-related expenses such as loan interest, depreciation and maintenance, which can result in significant savings.
Protection of personal assets
One of the main advantages of investing in a company is the protection of your assets. In the event of debts or claims against the company, your assets will not be at risk.
Market opportunities: Buying and renting properties
A real estate buying and leasing company offers the possibility of taking advantage of market opportunities, as it allows you to acquire a larger number of properties and generate income in the form of rent.
Tax implications of investing through a company
Corporate tax vs. personal income tax in real estate investment
When investing in real estate through a company, profits are taxed at corporate tax, which is generally lower than personal income tax. However, dividends paid to the owners of the company are subject to personal income tax.
Bonus on wealth tax
In some autonomous communities, if a company invests in real estate, it can benefit from a tax credit on assets.
How to offset the benefits?
A company has many ways to offset its profits, including deducting administrative and investment expenses. In addition, depreciation of property can also be offset.
Creating a buy-let company: The role of the investor
The profile of the real estate investor
Key elements of an investor include a keen awareness of market trends, the ability to analyze and evaluate properties correctly, and the patience to wait for the best time to buy and sell.
A company for buying and renting properties can be advantageous for investors. A company can offer tax benefits, the possibility of obtaining additional financing, and easier management of the properties. On the other hand, it also requires compliance with certain legal and tax obligations.
The steps to create a company in the real estate sector are as follows:
- Choosing the legal form: you can choose between various legal forms such as Limited Company, Public Limited Company, or Civil Company, among others.
- Drafting the articles of association: This is the contract that contains the basic rules for the operation of the company.
- Registering the company: Once the articles of association have been drafted, it is necessary to register the company in the Commercial Registry.
- Obtaining the definitive NIF and registration for the Tax on Economic Activities (IAE).
- Opening an account in which the share capital must be deposited, if applicable.
- Making the corresponding payment for the Tax on Property Transfers and Documented Legal Acts (ITPAJD).
Finally, it is important to have the advice of a professional in the area to avoid making mistakes or losing opportunities. They can help you study the market, choose the best legal form for the company and advise you throughout the entire property purchase process. With the help of a good advisor, any investor can become a successful investor.
Frequently asked questions and quick answers about investing in property
We have gathered for you some of the most common questions our clients ask us on this topic.
What are the benefits of a company for purchasing real estate?
It allows for better management and optimization of corporate tax payments. You can also access a special regime that allows a 60% bonus in the case of property leasing.
How can a family business benefit from investing in real estate?
Investing in real estate through a family business can minimise the cost of succession and provide an efficient way to manage and divide ownership and profits among family members.
How does the creation of a holding company to invest in real estate affect the wealth tax?
By forming a holding company, real estate assets are converted into shares in a company and this can sometimes be more efficient from a wealth tax perspective.
How can a holding company help with the succession of properties?
The succession of real estate through a holding company can simplify the succession process since the company’s property can be easily divided among heirs.
What are the benefits of investing in real estate through a holding company compared to doing so as an individual?
Investing in real estate through a company allows for greater flexibility and control over the property and may result in a more favourable tax regime.
Are there tax benefits to using a company to invest in rental properties?
Yes, especially if the property is intended for rent since you can access a special regime that allows a 60% bonus on corporate tax.
What are the advantages of buying a flat through a company?
Buying a flat through a company can allow for a more efficient distribution of costs and income generated by renting or selling the flat.
How can creating a company benefit from investing in the real estate market?
Setting up an investment company can provide greater control over investments, and potential tax benefits, and can ultimately increase the profits generated by investments.
What steps do I need to follow to set up a real estate investment company?
The first step is to seek advice from a legal and financial expert to understand the tax and legal implications. Next, you must legally form the company, choose a corporate structure, register the company, and then acquire the desired properties.
Is it necessary to have experience in real estate management to invest?
While experience is not strictly necessary, it can be very beneficial. Effective management of acquired properties can be a key factor in the success or failure of the company’s investments.