Investment approach
Which Costs Are Deducted Before DNPI's Fee in a Project
Distributable profit is smaller than the gap between sale and purchase: taxes, financing, closing and other costs are deducted before the split. Which ones exactly is set by the contract.
The distributable profit of a project is what remains after all the costs and taxes that the contract allows to be deducted before the split. It is almost always noticeably smaller than the gap between the sale price and the purchase price. Which items are deducted, in what order and who confirms them is set by the project contract and by the accounting rules of the structure in which the project is set up.
How distributable profit differs from the price gap
The price gap is simple to calculate: sale minus purchase and major costs. Distributable profit adds everything else: purchase and sale taxes, closing and registration, financing, holding costs, commissions, corporate income tax and other items. The price gap remains a useful reference point, but it cannot be divided in half.
DNPI's completed projects, Sitges and Compte de Urgel, are published precisely as a price gap.
| Project | Purchase | Costs | Sale | Gap |
|---|---|---|---|---|
| Sitges (a plot, term 2 years) | €509,250 | Permits and licences €20,000 | €760,000 | €230,750 |
| Compte de Urgel (an apartment, Barcelona) | €410,000 | Renovation €76,230 | €720,000 | €233,770 |
The caveat is mandatory. The gap is calculated as sale minus purchase and the costs shown. Taxes, financing, closing and other costs are not included. It is not net profit and not the investor's return. Past results do not guarantee future ones.
Which items usually arise between the gap and the split
The list depends on the project, but the questions are always the same. Which of them are deducted before the split is set by the contract.
- Taxes on purchase: ITP or IVA with AJD, depending on the asset; see the project budget.
- Notary, registry, gestoría (administrative agent) (closing the purchase).
- Holding the asset: IBI (property tax), utilities, insurance, comunidad (owners' association fees).
- Financing: interest and fees, if the project uses borrowed money.
- Sale costs: agency commission, plusvalía municipal (on a sale for consideration it is paid by the seller, art. 106 TRLRHL).
- Corporate income tax, if the asset is held by a company.
- The operator's fee, if it is deducted before the split rather than from their share.
The last item matters most: if a third-party fee is deducted first, the base for DNPI's 50% is smaller. In the DNPI model, compensation is paid from DNPI's fee if the investor's return over the whole project is below the contractual 10%. How it relates to the calculation of distributable profit is shown by the project contract.
A worked example: from the price gap to the investor's result
A worked example, not a forecast and not DNPI's terms. Suppose the asset is held by an SL. Sale 1 M€, purchase €600,000, renovation €100,000.
| Step | Amount |
|---|---|
| Gap: sale minus purchase and renovation | €300,000 |
| Purchase taxes and closing | minus €50,000 |
| Financing | minus €20,000 |
| Sale costs | minus €30,000 |
| Profit before corporate income tax | €200,000 |
| Corporate income tax 25% (general rate, art. 29 Ley 27/2014) | minus €50,000 |
| Profit after tax | €150,000 |
| Investor's half after DNPI's fee | €75,000 |
Out of the €300,000 "gap", the investor is left with €75,000, a quarter. And that is before the operator's fee, if it is deducted before the split. The 25% rate is the general one: for newly created companies and companies with turnover under 1 M€, art. 29 provides other rates, and which one applies to the project's SL is for an asesor fiscal (tax adviser) to calculate. The tax base is not the same as accounting profit: it is derived by adjusting the accounting result (art. 10 Ley 27/2014). If the asset is held differently, the taxes will be different.
What limits a payout from an SL
Even after the calculation, payment does not always follow immediately. Part of the profit goes to the reserva legal (legal reserve): 10% of the year's profit until the reserve reaches 20% of the capital (art. 274 Ley de Sociedades de Capital). Dividends may be paid if the value of net assets is not less than the capital and will not fall below it after the payment (art. 273). Profit in the accounts and free cash in the bank are not the same.
Questions for the contract before signing
- Whether the list of costs deducted before the split is closed.
- Who confirms each item, and with what document.
- Whether the operator's fee is deducted before the split or from their share.
- Whether the calculation includes taxes, and under which structure.
- When return is compared with the contractual threshold: before or after tax.
Who this calculation model does not suit
It does not suit someone who goes by a simple price gap: it gives an inflated picture. It does not suit someone who is not ready to match costs against documents. Check your own assumptions in the investor calculator and the methodology. How costs relate to DNPI's 50% fee is explained in the article on DNPI's fee.
Questions and answers
Which costs are deducted before DNPI's fee?
Those the contract allows to be deducted: purchase, closing, taxes, renovation, financing, holding costs, sale costs. A closed list should be found in the project contract.
How does the gap between sale and purchase differ from profit?
The gap does not account for taxes, financing, closing and other costs. That is why it cannot be divided in half.
Is the operator's fee part of the costs?
It depends on the contract. If it is deducted first, the base for DNPI's 50% fee is smaller. This is worth checking with a separate question.
Is corporate income tax paid before the split?
If the asset is held by a company, the company pays the tax, and it reduces distributable profit. For a non-resident investor, taxes on dividends and on income arise separately; that is a question for an asesor fiscal.
