Limited Company vs. Holding Company: Which Is Better for Real Estate Investment?

Choosing the right legal structure for investing in the real estate market is no minor decision. A poor choice can increase the tax burden, complicate wealth management, or limit future expansion capacity.

Among the most commonly used structures in Spain are the limited company (SL) and the holding company (sociedad patrimonial). While they may seem similar, they have key differences that should be understood before moving forward.

At Borneo Advisors, we help our clients analyze which structure best suits their portfolio size, investment goals, and applicable tax framework.

What Is a Limited Company?

The limited company (SL) is the most common type of commercial company in Spain. It is mainly used to carry out business activities, and its main features include:

• Requires a minimum share capital of €3,000.
• Limits partners’ liability to the contributed capital.
• Subject to corporate tax (25% in most cases).
• Provides flexibility to conduct commercial operations, hire employees, and develop various business activities.

In real estate, an SL is often used for recurring buy-and-sell activities (e.g., property development or house flipping) and for rental investments when considered an economic activity.

What Is a Holding Company?

The holding company, on the other hand, is designed for the ownership and management of assets—mainly real estate—without carrying out direct business activity. Some of its key features are:

• Incorporated as a company that owns assets but does not engage in direct business operations.
• Its income primarily comes from rentals or dividends.
• Allows real estate income to be channeled in a centralized way.
• Widely used as a tool for tax and estate planning, especially in family wealth structures.

This model is generally recommended for those who want to separate asset management from their personal sphere and optimize its tax treatment.

Key Differences Between a Limited Company and a Holding Company

Although both are formally commercial companies, they present substantial differences that directly impact investment strategy:

Purpose and Activity

• Limited company: aimed at carrying out commercial and business operations, such as buying and selling real estate for resale.
• Holding company: its purpose is asset ownership, not economic activity.

Taxation

• SL: taxed at 25% corporate tax on profits, though tax incentives may apply if it qualifies as a small company.
• Holding company: also taxed under corporate tax, but without the benefits available to companies carrying out active economic activity.

Risk Management

• SL: suitable when assuming significant business risk, as it limits partners’ liability.
• Holding company: designed to preserve and transfer wealth, protecting it from personal risks.

Use in Real Estate Investment

• SL: recommended for active projects such as development, construction, or recurring property sales.
• Holding company: ideal for holding rental properties or managing family portfolios with a long-term view.

Which Structure Is Best for Investors?

The choice between a limited company and a holding company depends on several factors:

• Active investor: if your goal is to buy, renovate, and sell properties repeatedly, an SL is more suitable, as it allows agile business operations.
• Wealth-focused investor: if your objective is to generate recurring rental income and protect wealth, the holding company is more efficient.
• Estate planning: for those who want to facilitate the transfer of family wealth, the holding company offers more advantages.
• Business diversification: if real estate is only part of a broader business strategy, the SL may fit better.

Risks and Practical Considerations

It is important to consider certain aspects before deciding:

• The holding company does not enjoy the same tax incentives as an SL.
• The SL requires more active business management and may involve higher labor and administrative costs.
• In both structures, proper tax and legal planning is essential, as the tax authorities closely monitor real estate operations.

The Importance of Expert Analysis…

There is no one-size-fits-all formula for investors.

What may be ideal as a holding company for a small rental investor may not make sense for a property developer or an investor engaged in recurring transactions, where a limited company might be more appropriate.

At Borneo Advisors, we carefully analyze the client’s profile, current portfolio, and future objectives to design the most suitable structure.

Our strategic approach ensures that the choice not only makes sense today but is sustainable over time.

If you want to evaluate which model best fits your case, feel free to contact us.