Many companies in the Spanish real estate sector will have difficulty paying corporation tax on last year’s profits, and may have to ask for an extension on the 25 July deadline for paying taxes, according to an article in the Spanish daily ‘Publico’.
Many developers, not to mention other companies in the Spanish real estate sector, made fat profits in 2007, despite the market downturn in the last quarter of the year. Corporation tax on last year’s profits has to be paid by the 25th July, but the property market slump and credit crunch, which has blown a hole in many cash-flow plans, has left many developers with acute liquidity problems, and unable to pay their taxes.
The article reports that various financial consultants are seeing their developer clients forced to beg the Spanish tax authorities for an extension on the 25 July corporation tax deadline.
“Their results in 2007 were excellent, despite the last quarter, which means they have a lot of tax to pay,” says one tax consultant quoted in the article.
“Companies in the sector are in a difficult position,” says another. “Many reinvested the profits of recent years, and along with high levels of debt many now have a serious liquidity problem.”
This year’s slump in sales is another reason why developers are desperately short of cash.
There are 40,000 companies in the sector, but 90% of the business is done by just 6,000 of them, and it is the small and medium sized developers that are thought to be the hardest hit. The Spanish tax authorities demand collateral such as a bank guarantee before granting tax extensions, and small and medium sized developers are the least able to get such guarantees.
The 25 July corporation tax deadline could be the final straw for cash strapped developers.