One of the biggest challenges for any company is ensuring longevity and passing it smoothly from one generation to the next. Before any generational change, it’s wise to consult with a specialist to assess the necessary wealth restructuring options—one of which could be opting into the family business tax regime. This special regime brings several tax benefits, which we’ll outline in this article.
To qualify for these benefits, the law sets out specific requirements:
I) Active Management Role and Compensation: You must actively perform a management role and receive at least half of your total income from this work and other economic activities.
Management roles include positions such as president, CEO, manager, director, board member, or similar positions where you’re directly involved in company decisions. Simply being on the board doesn’t count as a management role.
For this to apply, your appointment or contract must clearly state that your compensation is for management work. Income from other economic activities, especially those benefiting from asset acquisition deductions, doesn’t count toward the required management salary percentage. For individuals with management roles in multiple entities, only the income from each entity’s management role counts toward the required percentage.
II) Minimum Ownership: You (or you together with immediate family members) must own at least 5% of the company individually or 20% jointly. If shared ownership meets the required family percentage, at least one of the family members involved must fulfill the management and compensation requirements above.
III) Active Business Requirement: The company must engage in one or more active business activities, rather than solely managing financial or real estate assets. More than half of its assets should be related to active business operations, not just held as investments.
For rental activities to count as business operations, the company must employ at least one full-time staff member exclusively for managing rentals (finding tenants, collecting rent, handling complaints, etc.). This employee should only perform rental management tasks, not maintenance or cleaning duties.
Once these criteria are met, eligible businesses enjoy these tax benefits:
- Exemption from Wealth Tax and the Temporary Solidarity Tax on Large Fortunes for qualifying shareholdings under the family business regime.
- A 95% reduction in the value of shareholdings for Inheritance and Gift Tax purposes, if shareholdings are held for five years following the owner’s death.
It’s essential to consult with experts regularly to ensure continued compliance, as interpretations evolve through case law and administrative rulings. What qualifies today may not apply tomorrow.
At addwill, we’re here to answer any questions you have. Want to see if your business qualifies under the family business regime? Contact us at +34 934 875 200, via email at comunicacio@addwill.eu, or by clicking here.