UAE residents will be taxed in Spain for the contribution of real estate to companies

The Directorate General of Taxes (DGT) has clarified the tax treatment applicable when a resident of the United Arab Emirates (UAE) makes a contribution of real estate assets for the capital increase of a Spanish company. This operation, which is often perceived as an internal movement of assets, has direct tax implications for Non-Resident Income Tax (IRNR).

What the DGT has ruled

The advisory body determines that the contribution of real estate to a company is classified as a disposal of real estate. Under the Convention between Spain and the UAE, Spain maintains the authority to tax this income in accordance with the Recast Text of the Non-Resident Income Tax Law (TRLIRNR).

The resulting capital gain will be calculated as the difference between the acquisition value and the transfer value. In this scenario, the transfer value will be the highest of the following amounts:

• The nominal value of the shares received.
• The quoted value of said shares.
• The market value of the contributed assets.

For its part, the acquisition value will consist of the actual purchase amount, increased by the expenses and investments made. It should be noted that the self-assessment could be affected if there is a subsequent verification of values in the Transfer Tax (ITP).

What this means for you

If you are a resident in the United Arab Emirates and own real estate assets in Spain, you must consider that any movement of these assets into a Spanish corporate structure will trigger a tax obligation in Spain. This is not a mere capitalization of assets, but a disposal operation that generates a capital gain subject to IRNR.

What should be done

Before proceeding with a capital increase through the contribution of premises or real estate, it is necessary to perform a precise calculation of the market value and the acquisition costs. Since the transfer value is determined by the highest of the aforementioned values, an incorrect valuation could lead to insufficient settlement and possible requests from the Administration. It is fundamental to assess each case individually to determine the exact tax impact of the operation.