In the real estate business, especially when dealing with Spanish companies, one of the most common questions we receive is:
“What is the best way to inject funds into a Spanish Limited Company — through a loan agreement or a capital contribution?”
Both methods are valid, but they have different financial and tax implications depending on the company’s structure, objectives, and tax residence.
1. Loan Agreements
Funds injected through a loan are recorded as a liability in the company’s accounts. Interest may be payable to the lender and could be deductible or taxable depending on the jurisdiction. In some cases, repayment or interest may be restricted or subject to withholding taxes.
2. Capital Contributions
Capital contributions increase the company’s equity. They usually do not require repayment or interest, but can affect the shareholding structure and have corporate tax implications.
Choosing the Right Option
The decision depends on tax efficiency, fund repatriation, and the company’s long-term strategy. Because rules vary by country, it is essential to consult a qualified tax advisor before deciding.