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Tax benefits family businesses and requirements

A family business can be defined as that company in which a family holds the direction of the general strategy and its control. In other words, is that in which a significant part of the capital must have in possession of a set of subjects interconnected by family relationships.

Family businesses are very important in our country, since they compound a large part of the business fabric. That is why the general and autonomic regulations determine certain tax benefit for a family business partners who accomplish certain requirements. We explain it below.

Tax benefits on family business

The tax benefits that are granted to family business partners are focused on two tax figures: the Wealth Tax (Impuesto sobre el Patrimonio) and the Inheritance Tax (Impuesto sobre Sucesiones y Donaciones).

On the one hand, the family businesses are exempt on the Wealth Tax. On the other hand, it benefits on discounts between 95% and 99% on mortis causa acquisitions in the Inheritance Tax, according each Autonomous Community.

Requirements for a family business to benefit from tax incentives

  • Being incorporated ad commercial company (SL or SA).
  • The company must carry out an economic activity.
  • Individually, the person who exercises the control of the company must a minimum of 5% of the shares or participations on the company. It also exist the possibility to apply at a familiar group level, where the spouse, ascendants, descendants, or collaterals up to second degree, whether by consanguinity, affinity or adoption, must have at least 20% of the shares or participations. In the case of the Inheritance Tax, are included up to third grade.
  • The remuneration received from the family business must be the main source of income of the taxpayer (or of any of the persons belonging the family group, if it applies that rule), what it means, that exceed the 50% of its income from work and economic activities.
  • If you participate in more than one company that may be object of this same exemption, the calculation of this percentage can be done separately for each, but in this assumption, the income derived from direction in this other companies are not included.
  • It will also be necessary to verify that the management tasks are carried out in the company.

There are some specific regulations that affect those requirements according to the main activity of the company. For example, those engaged in the rental of real estate must have a minimum of one person hired.

It is also important to comment that the tax inspection bodies are becoming more rigorous when demanding the demonstration of an effective management of the company.

To achieve a proper tax planning of your personal and family assets, and benefit from the incentives with respect to Wealth Tax and Inheritance Tax it is advisable to have the services of a specialized tax consultancy such as GM Tax. Contact us and we will explain you how we can work together.

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