16. How are investments in Urbanitae taxed?
We all want to make money when we invest. But, apart from terms, returns and risks, there is a crucial aspect when it comes to investing: taxation. In other words, how do I have to declare the benefits? On this occasion, we will talk about the taxation of real estate crowdfunding and crowdlending, and how investments in Urbanitae are taxed.
Let’s talk first about the income tax return, and how to declare the investments made in Urbanitae in the income tax. After all, in 2022 Urbanitae repaid the investment in ten projects. A total of more than 8.8 million euros, with an IRR of more than 16%. The almost 2,200 investors who received benefits should check in this year’s tax return that the draft reflects it properly.
Urbanitae and income tax
The first thing to clarify is that the fact of investing in an Urbanitae project does not generate any type of obligation, neither of information nor of taxation, in the IRPF declaration. Investments only have to be declared when there is a gain, either by charging interest -loan projects- or by dividends -capital gains projects-.
When this event occurs – payment of dividends or interest – the promoter is obliged to make the legal withholding that corresponds to each investor. For most investors it is 19%, which is the rate applicable to returns up to 6,000 euros. This income is taxed in the IRPF as income from movable capital within savings income.
It should be clarified here that withholding is one thing and taxation is another. There are times when there is withholding and other times when there is not: it depends on what the law says. The withholding does not mean that you are going to pay those taxes, only that you advance them and, when making the declaration, they are adjusted. The end result is taxation.
In most cases, equity and debt projects work the same for tax purposes. Equity projects, i.e., those in which an investment is made in the capital stock of the limited liability company created exclusively to develop the project, are taxed when profits from the project are paid out via dividends. Crowdlending projects are taxed when interest is paid. However, some nuances should be made in the case of equity projects.
Capital gain projects
Sometimes, capital gain projects generate money up front, because there is money left over in the company’s cash box and it is paid back. In these partial refunds, the investor recovers the capital invested at the same value: since no profit has been generated, there is no taxable event and therefore no tax liability. Only if this partial refund is made as an extraordinary dividend would there be an obligation to pay tax on it.
The usual pattern for total returns of equity projects is as follows: dividend payment, return of capital and liquidation. However, sometimes projects are terminated by liquidation quota. For the investor, the result is the same. However, in this case no retention occurs. Therefore, each investor will have to include the data manually in the income tax return: I bought these units on this date at this value and sold them at this other value on this other date.
Legal entities (corporations)
When the investor is a legal entity, for example, a company, things change. The tax levied on income received by legal entities is not personal income tax, but corporate income tax. There is a case in which companies are exempt from taxation on the profits obtained from their investments in equity projects in Urbanitae.
When a company invests at least 5% of the amount financed, it becomes the owner of that 5% of the company developing the project. For tax purposes, this condition means that the company developing the project is considered a subsidiary of the company that invested in it. Consequently, the profits achieved are not subject to corporate income tax.
Urbanitae and wealth tax
In the case of wealth tax, the investments made and the money in the investor’s wallet must be declared. In this case, therefore, it is not the profits that are taxed, but the assets and rights of economic content. This includes, for example, investment positions within Urbanitae.
For most investors, it is not a concern. In Spain the wealth tax establishes a minimum exemption of 700,000 euros. And, in addition, an exemption of 300,000 euros for the taxpayer’s main residence. It should also be taken into account that taxpayers whose tax liability is payable or, even if this does not occur, if the value of the assets and rights exceeds 2,000,000 euros must file a tax return for this tax.
Having said all of the above, it is important to highlight the most important thing of all: the responsibility for taxation lies with the taxpayer. However, in order to make it easier for investors, Urbanitae provides each investor with information on the investments made and the profits obtained every year. In the case of Urbanitae, the average annual return to date is 17%. Since it is necessary to declare, let it be with good results.