Buying in a personal name or thru a company: tax and legal differences for a property in Formentera

Those considering a real estate purchase in Formentera — whether as a primary residence or as an investment — often find themselves facing a question that seems technical but has very concrete consequences: Is it better to purchase as a private individual or to register the property under a company? The answer is not universal. It depends on the buyer’s goals, where they live for tax purposes, how they plan to use the property, and how long they plan to keep it.
This article provides an overview of the main differences. It does not replace specific tax advice, which remains essential before any transaction: but it provides the framework to ask the right questions.

Purchase in one’s own name: the most direct route

Buying as an individual is the most immediate solution and the one that most foreign buyers adopt for their first property. The process is relatively straightforward: obtain the NIE (Número de Identificación de Extranjeros), open a bank account in Spain, proceed with the deed before a notary.

Taxes at the time of purchase

The purchase of a second-hand property is subject to the Property Transfer Tax (ITP), which varies according to the Autonomous Community. For new properties, a 10% VAT is applied instead. In the Balearic Islands, the ITP is around 8-11% depending on the property’s value, with progressive rates for higher values.

Recurring taxes on ownership

The ownership of a property in Spain entails the annual payment of the IBI (Impuesto sobre Bienes Inmuebles), calculated on the cadastral value, equivalent to the Italian IMU.
For non-residents, the IRNR (Impuesto sobre la Renta de No Residentes) is added. Even in the absence of a lease, Spanish law presumes a notional income: the taxable base is 2% of the cadastral value, with an IRNR rate of 19% for residents of the European Union. In practice, you pay a tax even on a house kept available and not rented out.

The taxation of rental income

A non-resident owner who rents out their property in Spain is subject to IRNR on the rental income received. The rate is 19% for residents of the European Union. If the tenant is a private individual, no withholding tax is required, so the owner must self-assess quarterly or annually by submitting Form 210.

The taxation on the sale

The sale of a property in Spain generates a capital gain subject to tax: the rate varies between 19% and 27% depending on the profit generated. The Municipal Plusvalía is added, the municipal tax on the increase in land value.

The limits of personal purchase

The main disadvantage for those who purchase as individuals for investment purposes is liquidity. If the funds for the purchase come from profits that have already been personally taxed, the money available for investment has already been eroded by income tax. Moreover, the property becomes part of the buyer’s personal assets, exposing them to risks related to potential creditors or personal disputes.

Purchase thru a Spanish company (SL): when it makes sense

The Sociedad Limitada (SL) is the Spanish equivalent of the Italian SRL. Establishing it is neither complicated nor particularly costly, but it entails ongoing accounting and management obligations that must be considered in the overall cost calculation.

The corporate tax

The Spanish tax system for companies is regulated by the Impuesto sobre Sociedades (IS), with a standard rate of 25%. Corporate taxation is managed at the national level. For new companies, in the first two years of activity with a positive taxable base, the reduced rate is 23%.
The advantage over personal purchases lies in liquidity. If a company generates profits and reinvests them directly, it pays the Corporate Tax at 25% before any distribution. Compared to a private individual who withdraws those same profits as dividends or salary, it faces less taxation before being able to use the resources for a real estate purchase.

The deductibility of costs

One of the concrete advantages of corporate ownership is the possibility of deducting costs related to property management—maintenance, insurance, mortgage interest, management expenses, depreciation—from the taxable base of the Corporate Tax (Impuesto sobre Sociedades). Legal entities can deduct expenses considered deductible under the corporate tax law, provided they are duly proven. For a non-resident individual, this possibility of deduction is much more limited.

Asset protection

The property registered to a company is no longer the partner’s, but the company’s. This creates a legal shield: in the event of personal debts, the company property is extremely more difficult to target by potential creditors. For those who hold significant wealth, this aspect is not secondary.

Succession planning

Transferring one or more properties to a limited liability company simplifies the transmission of assets. Instead of directly transferring the real estate asset — with the related appraisals, property taxes, and procedural complexities — the company shares are transferred. In certain cases, this operation can benefit from more favorable tax treatment compared to the direct succession of the property, especially within the context of planned family structures.

The disadvantages not to be underestimated

The management of an SL involves fixed and recurring costs: keeping accounts, periodic VAT and IS declarations, mandatory electronic invoicing from 2025, auditors if certain thresholds are exceeded. For those who purchase a single property of modest value with predominantly personal use, these costs can negate the tax benefits.
There is then a specific risk to avoid: Buying the property with the same operating company that conducts the main business is a mistake. If the operating company faces a lawsuit, a serious default, or a crisis, the property will be dragged down with it and can be targeted by creditors. The correct structure involves separating real estate assets from the operating business.

Foreign company or Spanish SL?

Many European investors wonder whether it is worth purchasing thru an already existing company in their country of residence, or establishing a new SL in Spain.
Companies not registered under Spanish law and lacking a legal or principal place of management in Spain are considered non-residents and subject to the IRNR, taxed on commercial profits and capital gains but only in relation to income sourced from Spain. In general, a foreign company owning a property in Spain has a less favorable tax treatment compared to a Spanish SL, with fewer deduction possibilities and greater complexity in managing compliance.
For those looking to make a structured and long-term investment, the establishment of a Spanish SL dedicated to real estate management is generally the most efficient solution.

The variable of tax residence

The entire described framework changes significantly depending on whether the buyer is a tax resident in Spain or not. A person is considered a tax resident in Spain if they are present in the country for more than 183 days a year, or if they have established the center of their economic interests there.
The tax resident is subject to the IRPF on worldwide income, with progressive rates that can be penalizing for those with high incomes. The non-resident pays the IRNR only on income produced in Spain, with lower fixed rates but fewer deduction possibilities. The choice of the purchase structure should always be calibrated on this parameter.

What is the right choice for Formentera?

There isn’t a single answer that works for everyone, but there are good rules to follow based on goals.
For those purchasing a single property for predominantly personal use, with occasional rentals, buying in their own name is generally simpler and more efficient. The costs of corporate management would not be justified.
For those who purchase with the primary objective of generating rental income, with an active ETV license and structured management, the Spanish SL offers concrete tax advantages: cost deduction, a 25% corporate tax rate on net profits, asset protection, and greater flexibility in estate planning.
For those looking to build a portfolio of multiple properties, the corporate structure — preferably a dedicated LLC, separate from any operational activities — is almost always the most rational choice in the medium to long term.
International real estate taxation is a field where the choices made at the time of purchase have consequences that last for decades. Before signing any preliminary agreement, it is essential to rely on a tax advisor who is familiar with both Spanish regulations and those of the buyer’s country of residence, especially in the presence of double taxation agreements. We at yourformentera.es can recommend the professionals we usually work with on these matters.
Article updated as of April 2026. The information contained is for guidance purposes only and does not replace personalized tax advice.