A Tax Loophole

A final note about taxes, for the time being: when a property is sold, a tax is levied on the transfer of the property (impuesto de traspaso). In nine out of ten cases, it is the buyer who pays the property transfer tax, though this is a negotiable point. The amount of the tax is calculated thus: you pay 1.5% of either the value of the property as stated in the sales contract or as stated in the National Registry (whichever amount is greater). To reduce the amount of the property transfer tax, buyer and seller often collude and understate the sales price in the sales contract (the buyer pays the difference to the seller, under the table.) Ethics aside, this common practice sometimes leads to problems; should a legal dispute develop after the sale, the sales contract does not indicate the true sales price. There is a perfectly legal option available to home buyers if they want to avoid the property transfer tax entirely. If a house is registered under the name of a corporation, then the buyer purchases the shares of that corporation in order to acquire the property and avoids paying any property transfer taxes. See Chapter 7 for more information about this subject, and some attendant pitfalls.