The Residence permit in Spain through investment

Spanish Law on Entrepreneurship (Law 14/2013) has approved new cases where foreigners from non-European Union countries can obtain the residence permit in Spain through the execution of investments:

1. Investments in real estate for an amount equal or higher than € 500.000 (Five Hundred Thousand Euros). The investment can be made in one or more properties, but at least € 500.000 should be free of encumbrances (mortgage, i.e.). If the price is higher than € 500.000, the rest of the amount could be paid through mortgage.
2. Financial investments for a value equal or higher than 1 million Euros. This type of investment includes listed and non-listed shares, in case of non-listed shares they could be from already operating companies or newly incorporated ones, investment funds, and deposits in Spanish banks.
3. Investment in Spanish sovereign debt for an amount equal or higher than 2 million Euros.
4. To carry on a business project in Spain that was considered as being of public interest. To this purpose, one of these conditions should be met: creation of jobs, execution of an investment that has a positive impact in the region where it is located, or a relevant contribution to scientific or technological innovation.

The visa granted through the execution of these investments is valid during at least one year, and in order to obtain the residence permit some other requirements should be met:

• to not stay previously in Spain in an illegal situation,
• to have more than 18 years,
• to not have criminal records,
• to have a health insurance (hired from a company operating in Spain)
• to have financial means for the stay in Spain (i.e. a bank deposit, or income from leases or dividends. Payroll does not qualify for this purpose).

If the above requirements are met, a two years residence and work permit could be granted. After this term, the residence permit can be extended for successive five years periods. The investments should be kept during all these periods. This permit does not request the foreigner to live in Spain for more than six months; therefore it will not be cancelled if the foreigner lives in another country.

The residence and work permit is granted to the individual who executes the investment. If he/she is married and/or has children or ancestors who depend on the investor, it is possible to apply for their visa at the same time or later on. It is possible to execute the investment through a company owned by the investor, provided it is not a company domiciled in a tax heaven country.

The Spanish visa allows free movements within the EU countries (Schengen space). The valid travelling document is the passport.

Foreigners who wish to carry on a self-employment project in Spain could obtain the work and residence permit, but through a different procedure than the above mentioned, and these cases the minimum investment amount is lower.

Investment in real estate

The investment in real estate could be in residential, commercial or industrial properties. The property could be leased to third parties before or after the acquisition, or used by the investor. For ambitious investors, there are several possibilities to structure the investment in buildings and apartments and to a higher return of the investment.

There are some costs related to the acquisition of real estate: the acquisition itself is taxed by Transfer Tax at rates ranging from 6 to 10% on the acquisition price, depending on each Spanish region where the property is located, to be paid by the buyer. Besides, the buyer should pay the Notary Public and Property Registrar’s fees, which approximately amount 3% of the acquisition price (the addition of both of them). These amounts are paid once, when the property is acquired.

The annual costs related to the ownership of real estate in Spain are the following ones:

• IBI or local property tax, whose amount is calculated based on the value and location of the property.
• “Community expenses”, that is those expenses related to the maintenance of the common areas of the building where the property is located: cleaning, lighting, etc.
• In some cases, also a small tax for garbage should be paid to the Town Council.
• Owners should file the Spanish Personal Income Tax Return, and pay a percentage between 1,1% and 2% of the property’s “cadastral value” (official value), in case the property is not leased to a third party. If the property is leased, the owner should also file the Personal Income Tax Return based on the amounts obtained from the lease.

Besides, owners should also pay the expenses related to their property: ordinary maintenance expenses, insurance, electricity and water, etc.

In Spain, the property right is considered as a full right, which implies that the owner can use the property by himself, can lease it to third parties, can mortgage or encumber it, can sell or gift it to any third party and can pass it to his heirs through a will.

The only limits to the use of the property by its owner or the persons appointed by him are those established by the civic rules regarding noises, pets, exterior image of the property, etc.

Regarding the lease of the property, in principle it is free, and the rights and obligations of landlord and tenant are those provided by the private lease agreement entered between both parties and the Spanish Urban Leases Law (Ley de Arrendamientos Urbanos). However, nowadays many Spanish cities (and specially Barcelona) have approved strong limits to the so called touristic leases, which are the short term (days or weeks) leases, and request a special license.

It is important to point out that foreigners who become residents in Spain can grant their will according to Spanish inheritance laws (according to EU Regulation 650/2012), which slightly vary depending on each Spanish region. In Catalonia, for example, the testator can freely appoint who will be his heirs.

Financial investment

Financial investments can be executed through different types of targets, being always the minimum amount 1 million Euros:

• Shares of companies listed in the Spanish Stock Market.
• Shares of non-listed companies, which could be already operating companies or newly incorporated ones. In both cases, there are no limits as regards the percentage of shares that can be owned by foreigners, and the activity sectors restricted to non EU foreign investment are very few (gambling, defense, aviation, TV and radio). Foreigners can be appointed Directors of Spanish companies with the only requirement of having previously obtained the so called “N.I.E.”, which is the Spanish identification number for foreigners.

In case of a newly incorporated company, the € 1 million requested as investment would constitute the company’s share capital, and can be used for the startup of the company’s activities: for example, acquisition of goods, payment of salaries and rentals, payment of purveyors and subcontractors, etc.

Spanish companies have access to all European markets and have a privileged position for trading with Latin American countries.

• Investment funds: Spanish financial entities offer a very wide range of investment funds, from very conservative to high risk.

Deposit in a bank

The main advantage of a real estate investment compared to a financial investment is that the requested amount is only € 500.000 for real estate, while for a financial investment is twice this amount. During the past years since the Law on Entrepreneurship became in force, investment in real estate has been the most popular way for obtaining the residence permit in Spain, probably because at that time (2013-2016) real estate market prices were quite low due to the crash in 2008.

However, the process to acquire a property in Spain is not so easy compared to the acquisition of a share in an investment fund or making a bank deposit: the investor has to choose the property, which normally requires one or two visits to Spain, the price and sale conditions have to negotiated and drafted, the purchase deed has to be signed before a Notary Public (by the investor or his proxy), there are taxes and expenses related to the acquisition, and once the property is acquired, it is necessary to pay ongoing expenses and taxes, and maintain the property in good condition.

Compared to this, the investment in funds or making a bank deposit only requires one visit to the bank by the investor, in order to sign the correspondent documents.  There are not related taxes or expenses, and the liquidity of the investment is  full  (that is,  the investment can be sold at any moment,  quite probably at the same or  at a higher price, but this is not guaranteed for real estate investments).

How to open and operate a bank account in Spain

In Spain, banks apply the regulations regarding anti-money laundering, which include the KYC (Know Your Client) rules and the obligation to prove the legal origin of the funds. The KYC rules imply the need for the investor to appear personally before the bank at least once, previously to operating the bank account. The legal origin of the funds can be proved through different means:

• In case of employees, through the payroll splits, or a certificate issued by the employer, or the investor’s personal income tax return.
• In case of self-employed individuals, through their personal income tax return, or another type of documents proving their professional activity.
• In case of company owners, through the company’s financial statements.
• If the investor has obtained the funds necessary for the investment through personal loans, the loan agreements should be provided, plus the documents proving the legal origin of the funds provided by the lenders.
• Other documents, for example, regarding dividends or income from the lease of properties owned by the investor could be provided.

All documents should be legalized by a Notary Public or the Spanish Consulate, and sworn translated into Spanish.

Please note that this article is aimed to provide a general overview on Spanish rules regarding the above matters, but it does not constitute any kind of comprehensive information on them, and in any case specific legal advice should be sought prior to taking any decision.