businesses in Spain
represent 89% of all private companies and account for 67% of the jobs generated in the private sector.
It’s hard not to have a company around you where you know for sure that parents, children, uncles, nephews and cousins work. This type of companies represent an important pillar in the economy of our country and it is necessary to guarantee their continuity.
But is it really profitable to inherit one of these companies? It is convenient to know what you are facing and what tax benefits you can have if at some point in your life you are facing the succession or inheritance of a family business.
General characteristics of family businesses
First of all, you need to know the meaning of “family business”.
It is not simply that a father has his son employed in a small workshop or that an aunt with a food bar employs her nephews in the summer season.
The first characteristic of this type of company is that it has to be a commercial entity. That is, a Limited Company (S.L.), Sociedad Anónima (S.A.) or a group of companies in which the same person owns at least 5% of the shares or participations.
If the company belongs to a family group, this minimum participation will increase up to 20%. It means that the company is formed by a marriage, several brothers or grandparents and grandchildren, to give some examples.
Another feature is that it is managed by at least one family member. By definition, it would not make sense to consider a family business an entity governed by someone outside the family.
Taking these concepts into account, if you have a family business, what tax benefits can you count on? Read on and you’ll get the answer.
Tax benefits of the family business
Fulfilling the following requirements, the tax advantages of family businesses can be important:
Inheritance and Gift Tax
As a family business, you can get a 95% reduction in Inheritance and Gift Tax,so you would only have to pay 5% of the value of the company. It represents a considerable decrease and, especially in the case of inheritances, means that these are not considered as a burden.
You will also get tax benefits in the Wealth Tax.
Complying with the aforementioned characteristics you can be exempt from payment, in the Autonomous Communities in which 100% is not already subsidized.
Requirements to benefit from these tax advantages
What are the requirements you need to meet? We summarize them in the following points:
⇒ Membership in the Capital of the Company must be 5% consideredindividually, and / or 20% considered jointly with the family group (spouse, non-descendant ascendants, or second degree collaborators).
⇒ The management of the company must fall on a member of the family group. And, not only that, in addition, it should be your main source of income. This income has to account for at least 50% of your total returns. To understand us, you must live from the company and cannot be considered a secondary activity.
It is necessary to point out that the tax inspection services are increasingly rigorous in this aspect and require that an effective management be carried out by the assigned person. In many cases, as a taxpayer, you will have to prove this situation.
⇒ The company has to develop an economic activity effectively.
Asset holding or wealth management companies would not have these tax benefits unless at least half of the assets are assigned to an economic activity.
An example of asset holding companies would be the management of a family estate by the group of siblings. All the brothers own certain properties and are dedicated to renting them to third parties.
⇒ The person who inherits the shares must keep them in their possession between 5 and 10 years,depending on the Autonomous Community in which it is taxed.
It should be noted that these shares can be sold, as long as the profit generated is reinvested in the company itself.
If it is a donation,the donor must be over 65 years of age and must have stopped developing management purposes.
It is important to mention that more and more – especially on the part of the Courts – the conditions that family businesses must meet to benefit from these tax benefits are being “made more flexible”.
For example, a judgment of the Supreme Court of January 2016 establishes that, if the beneficiary performs the functions of direction and management of the company and is sufficiently accredited, he can benefit from tax reductions whether or not he charges for carrying out this activity.
This ruling opens the way for thousands of family businesses in Spain to benefit from these incentives.
For this reason, it is necessary to carry out a continuous planning in the company and that it is constantly verified that the points indicated are not being breached in any period.