Buying a hotel in Spain. What do you need to know?

The rhythm of life is gradually returning to its usual course after a difficult year of trials, including in various sectors of the economy. Of course, it will take time to fully recover, but a start has been made.

This also applies to the hotel business in Spain. No matter how difficult it was, the tourism sector has brought and will continue to bring considerable income to the country. Therefore, the need for places of residence of different types and sizes will always be relevant.

But the process of opening this business is not easy and requires knowledge of specific subtleties in different specializations, even if you are already purchasing a ready-made hotel.

In this article, we will tell you about the legal nuances that are important to consider before buying an operating hotel company.

1. Existing employment contracts and social security contributions.
The hospitality business is labor intensive and employs a large number of personnel to achieve a higher level of production and service. Personnel costs are often the biggest expense.
Thus, analyzing the legality of employment contracts, compliance with applicable collective bargaining agreements and the correctness of employee deductions is one of the key aspects to consider when purchasing a hotel.
In addition, if the current management of the hotel or some department heads do not plan to continue working or the staff is unreasonably large, then this suggests an adjustment. This will entail changes and reassessment of the size of wages.

2. The administrative side of the issue
In addition to checking the license to open a hotel, care should be taken to ensure that ownership changes do not result in the loss of certain subsidies or government assistance.
On the other hand, it is important to make sure that there are no urban contingencies that affect the hotel and could result in both significant fines and a demolition order.
There is one more nuance in the hotels located on the first line. It should not be subject to coastal law. This must be evidenced by an appropriate certificate of ownership issued by this government agency.

3. Intellectual property rights
You must make sure that the brand you are purchasing is registered in the name of the seller and is not expired. Also check the internet domains from which the hotel is commercially operated

4. Contracts concluded
Existing contracts with wholesalers should be examined not only from a commercial point of view, but also their remuneration, duration, obligations and potentially dangerous provisions.
In addition, it is necessary to analyze in detail the contracts concluded with suppliers and providers, including banks, and contracts under which, where appropriate, the hotel buyer will be replaced (loans, credits, leasing, rent, factoring, etc.).

5. Judicial and administrative proceedings
Any judicial and administrative process, even at the preliminary decision stage, should be investigated as its decision may affect the feasibility of the purchase.
The hospitality business is a highly regulated activity in which various administrations (Health or Tourism Inspectorate, Data Protection Agency, etc.) can intervene and exercise their sanctioning powers.

6. Taxes
In the case of purchasing a hotel, it must be divided into:
• if we buy just real estate, then in this case 21% VAT applies, it is important to take this into account when buying in advance. But if the purchase of a room for a hotel is a legal entity, especially if the property already belongs to the company (which is most often found in this transaction), then you can save money. In this situation, you can request an exemption from VAT, since the hotel is purchased for its intended use with the generation of VAT.

With this option, you only need to pay the AJD tax (Tax on Documented Legal Acts or Stamp Duty). It is different in each autonomous region of Spain, on average it can vary from 1.2 – 2% of the transaction, so it is better to clarify in a separate case directly in the region where the purchase of the object is planned.
Also, if you wish, instead of VAT and AJD, you can use the ITP tax on the transfer of ownership, the rate of which can also vary from 6 to 11% of the value of the property, depending on the region in which you are located.

• if we purchase real estate as a hotel business (a company with real estate), then in this case the transaction is subject only to the ITP tax on the transfer of ownership of the amount of real estate on the company’s balance sheet.

These are some of the most important things to consider before buying a hotel. But there are still many pitfalls that can negatively affect the outcome of a deal.

Therefore, if you are planning to buy a room or a ready-made hotel, we recommend that you contact our specialists, so as not to be trapped in such an important process.