Taxation Non-Resident Indirect Ownership of shares in SOCIMI

Once the Law 38/2022 on December 27 was approved, the Spanish legislator introduced a new temporary tax, the Temporary Solidarity Tax of Great Fortunes (ITSGF), and certain tax regulations affecting, among others, the Wealth Tax (IP), were amended.

The most relevant amendment, which we will address in this post, is realted to the taxation or non-taxation of indirect investments in SOCIMI by non-residents.

What novelty did the new law introduce in this matter? 

The concept of "assets located in Spanish territoy" received an extensive interpretation, according to which for the purpose of the Wealth Tax, assets not listed on organized markets, respresenting the share in equity of any type of entity, were classifed as assets located in Spanish territory if at least 50 per cent of their assets, directly or indirectly, consisted of real estate located in Spanish territory. 

In other words, individuals holding shares or stakes in non-listed companies which assets or the assets of another entity in which they hold a stake or composed of real estate located in Spain would be required to declare the Wealth Tax and, if applicable, the ITSGF.

However, a question arises: what about non-resident individuals who indirectly particiapte in listed entities with real estate investments in Spain? That is, are non-residents obliged to pay Wealth Tax (and iTSGF, if applicable) if they have a direct stake in a foreign company that serves as a vehicle and, in turn, invests in a Spanish SOCIMI?

How has the General Directorate of Taxes (DGT) resolved the question?

The new law did not clarify the scope of the exclusion for securities traded on organized markets. Nor did ir precisely identify whether the exclusion was absolute or applied only when the investment in listed entities was direct. 

Therefore, the DGT, in response to the binding consultation V2437-23, dated September 21, 2023, concluded by shedding light on two scenarios: 

1. The direct participation in a listed company by a foreign investor will not be considered located in Spanish territory; and 

2. The participation in a non-resident entity which assets are composed, at least 50 per cent, of real estate located in Spanish territory as a result of its investment in a SOCIMI will not be considered located in Spanish territory. 

In summary, when a non-resident investor participates in a company which securities are admitted to trading, but their participation pccurs indirectly, i.e., through a vehicle entity, they will not have a real obligation to contribute to the Wealth Tax and ITSGF. This understanding applies regardless of the position or level the listed company holds in the corporate structure. 

Below is a summary outline of the DGT`s resolution: 

The following types of investments by non-residents are not subject to Wealth Tax and/or ITSGF. 

1. Non-resident investor direct stake in equity of Spanish SOCIMI

2. Non-resident investor with stake equity of foreign vehicle with stake in equity of Spanish SOCIMI. The non-resident investor has indirect stake in equity of Spanish SOCIMI. 

What are the consequences of the DGT`s binding consultation?

This DGT criterion opens a very positive and attractive scenario for real estate investment in Spain through listed companies, providing assurance to non-resident investors regarding their non-subjection to the Wealth Tax or ITSGF.

If you want to know more, from Gentile Law, we help you to understand this criterion and advise on your wealth management.