The family business is an institution in Spain. It is estimated that up to 1.1 million Spanish companies are family businesses, which represents a staggering 89% of the total. In addition to being the majority in total numbers, they also account for 57.1% of private sector GDP and are responsible for 67% of private jobs, with almost 7 million jobs. That is why they enjoy some tax benefits.
Globally, family businesses are the organisations with the highest turnover and job creation. In the European Union alone, it is estimated that there are 14 million family businesses generating more than 60 million private sector jobs.
The family business in the legal system
Despite this obvious importance for the economy, there is no express recognition of family businesses in the Spanish legal system. However, we do find references to this type of company in certain tax regulations that reserve certain advantages for them. We will review them in this article.
Wealth Tax
Family businesses benefit from some tax advantages in the Wealth Tax. To do so, they must meet certain requirements:
- To dispose of 5% of the company’s capital individually, or 20% jointly by the family group.
- A member of the family is involved in its management and the remuneration for this work represents at least 50% of his or her total business, professional and personal income.
If these requirements are met and the entities are not merely holding assets, the shares held in these family companies are exempt from Wealth Tax.
Likewise, the assets and rights common to both members of the couple are exempt, when they are used in the development of the business or professional activity.
Inheritance and Gift Tax
Inheritance and Gift Tax also establishes state reductions in the case of inheritances or gifts of shares in family businesses. In this case, as the tax is devolved to the Autonomous Communities, it is necessary to review each specific case because there are also autonomous reductions.
The transfer by inheritance or donation of family businesses enjoys a 95% reduction in Inheritance and Gift Tax. The requirements for this are:
- The company must carry out an economic activity. In the case of holding companies, those that have the personal and material means to manage their holdings are considered to be carrying out an economic activity. In the case of companies that lease real estate, it is advisable for them to have at least one full-time employee, provided that the number of properties leased and the difficulty of their management justify it.
- As we have seen in the case of Wealth Tax, the shareholding of the owner in the transferred entity must be at least 5% computed on an individual basis, or 20% at the level of the family group.
- As in the case of wealth tax, the transferor or one of the members of the family group must exercise management functions and receive remuneration representing more than 50% of his or her business, professional and employment income.
- The acquirer must keep the shares for between five and ten years, depending on the autonomous community. Only in the case of inheritances can they sell them and use the money received to open a fixed-term deposit, buy another company or invest in investment funds without losing the bonus. However, if you sell them and use up the money received, you will have to repay the tax credit you have received.
The specific taxation of family businesses and the differences between autonomous communities make it highly advisable to establish tax strategies for the transfer of the company, succession or entry into the management and governance of the company. Professional advice from a consultancy firm specialising in family businesses such as Confianz is essential.