Marco Preuschoff Expat Maspalomas: you have to be cautious with investing from Germany in the Canary Islands

Stefan Meyer, founder of Monereo Meyer Abogados, visited southern Gran Canaria to meet with advisors and clients to discuss investment prospects. He was joined by Marco Preuschoff of Expat Consulting and Mentoring , who organized a high-level legal seminar in Maspalomas on the treatment of real estate investments by German investment funds under the Non-Resident Income Tax (IRNR) and VAT, as interpreted over the years. Marco Preuschoff explained that the seminar focused on the concept of residency in Germany and subsequent establishment in Spain.

In his opinion, the offices specialized in origin in Germany and destination in the Canary Islands are the only ones with the capacity to resolve possible problems in the future. The arrival of new rules regarding rentals in holiday homes that have alarmed investors of apartments in tourist land, in addition to new legal developments, has occupied a good part of Meyer's agenda in Maspalomas. One of the aspects analyzed has been that the General Directorate of Taxes in Spain has clarified in a binding statement that the fund management company is considered an entrepreneur for sales tax purposes. Therefore, sales tax liabilities arising from transactions within the scope of sales tax are generally the responsibility of the fund management company.

The lawyer Gustavo Yanes Hernández, Monereo Meyer Abogados, one of the largest specialists in the islands on Non-Resident Income Tax (IRNR) from Germany and the rest of Europe in the Canary Islands, recalled that the Central Economic-Administrative Court (TEAC) of Spain has issued a ruling that clarified a particularly complex aspect in this context: the attribution of rental income from real estate to German-owned real estate funds. Investment companies are managed.

In his opinion, "in the IRNR the taxpayer is the investment fund and not the management company, while in the VAT it is the management company. Therefore, this distinction is particularly important." And the ruling compares the different points of view of German and Spanish law on the ownership of real estate and the attribution of real estate returns: while according to the German Capital Investment Code (KAGB), the real estate assets acquired by the fund must register as property of the management company. Spanish law 35/2003, on investment companies, requires that the property be registered in the name of the fund.

The TEAC, when carrying out its assessment, is based on the principle that the taxpayer of the rental income is not necessarily the registered owner of the property, but rather the person who actually receives and benefits from the income. In this case, the management company acts as the formal owner, but acts as a fiduciary on behalf of the fund, the beneficial owner of the income.

Therefore, the TEAC concludes that the rental income would be taxed in the IRNR of the German investment fund as a real taxpayer. This decision highlights the importance of economic versus formal ownership in determining tax obligations. The General Directorate of Taxes also analyzed the taxation of these German investment funds in several binding reports and agreed with the TEAC