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Form 100. 2020 Personal Income Tax Return Declaration

8.2.2.2. Transitional regime for profits derived from unaffected elements acquired before 12-31-94

Requirements for the application transitional system

  • Capital gains must arise from the transfer (for valuable or lucrative consideration) of property or rights or from the extinguishment of rights.

    Therefore, the reduction percentages are not applicable to net gains arising as a result of additions of assets or rights to the taxpayer's assets or heritage rights which do not derive from a transfer.

  • The property or right had to be acquired before 31 December 1994.

  • The asset or right may not be used for an economic activity. For these purposes, non-assigned assets shall be considered to be those in which the activity has been taken out of use more than three years prior to the transfer date.

  • The asset may not have been awarded to the partner in the dissolution and liquidation of transparent companies.

  • The transferred asset must not derive from contributions made to the protected assets of people with disabilities.

  • The transmission value of all the equity elements whose capital gains would have resulted from applying this same temporary regime, transferred from 1 January 2015 until the transfer date of the equity element, may not exceed €400,000.

Calculation of capital gain

The calculation of the net gain or loss shall be made for each asset item.

The reduction percentages are only applicable to the part of the capital gain generated between the date on which the item was purchased and 19 January 2006 inclusive.

The part of the net gain generated between 20 January 2006 and the transfer date is not subject to reduction, nor are capital losses.

The determination of the share of the capital gain shall be made in accordance with the following rules:

  1. General rule

    • Net gains generated before 20/01/2006: the amount shall be that part of the net gain which corresponds proportionally to the number of days elapsed between the asset’s acquisition date and 19 January 2006, both inclusive, with respect to the total number of days that the asset remained in the taxpayer's assets.

      Profit generated before 20/01/2006 = (Total profit x No. of days from acquisition to 19/01/2006) ÷ No. of days from acquisition to transfer

    • Net gains generated after 20/01/2006: shall be the difference between the total net gains and the net gains generated before 20 January 2006.

  2. Special rule: securities admitted to trading (Directive 2004/39/EC) and shares or units of C.I.I.s

    As there is an official quotation, it is estimated that the value as at 19 January 2006 coincides with its valuation for wealth tax purposes for the 2005 financial year.

    • The transfer value is equal to or higher than the 2005 net asset value.

      • The cost price is lower than the 2005 net asset value. The net gains generated before 20/01/2006 will be the 2005 net asset value minus the cost price. The net gains generated after 20/01/2006 would be the transmission value minus the 2005 net asset value.
      • The cost price is greater than or equal to the 2005 net asset value: no reduction.
    • The transmission value is lower than the 2005 net asset value. The entire net gain is reducible. The transmission value minus the cost price is equal to the net gains generated before 20 January 2006.

Reduction calculation

  1. The part of the net gains generated before 19 January 2006 will be reduced as follows:

    1. The period of stay for the taxable person’s assets shall be taken as the number of years between the item’s acquisition date and 31 December 1996, rounded up to the nearest whole number.

    2. The transmission value of all the assets to which this regime would have applied from 1 January 2015 until the asset’s transfer date (not including the value of the latter) will be calculated.

      • If the value exceeds €400,000: no reduction whatsoever will be applied to the part of the net gain generated before 20 January 2006.
      • If the value is less than €400,000: this value and the asset’s transmission value shall be added together. If this sum is less than €400,000, the part of the net gain generated before 20 January 2006 is subject to a reduction. If the sum is greater than €400,000, the reduction will be applied to that part of the net gain generated prior to 20 January 2006 which proportionally corresponds to the part of the asset’s transmission value, which, when added to the amount in paragraph b above, does not exceed €400,000.
    3. Once the reducible amount has been determined, the reduction coefficients will be applied according to the nature of the transferred assets:

      • Shares admitted to trading on any of the official secondary securities markets defined in Directive 2004/39/EC of the European Parliament and of the Council of 21 April 2004 on markets in financial instruments, and representing the participation in the equity of companies or entities, with the exception of shares representing the share capital of Real Estate Investment Companies, the capital gain will be reduced by 25% for each year of stay exceeding two.

        Capital gains derived from these elements will not be subject to tax when, as of December 31, 1996, they had a retention period of more than five years (acquired before 12-31-91).

      • For real estate properties, rights thereto or securities of organisations included in Section 108 of the Securities Market Act nº 24/1988 of 28 July, with the exception of stocks or shares representing the corporate capital or equity of Real Estate Investment Companies or Funds, the net gain will be reduced by 11.11% for each year of stay exceeding two.

        Capital gains derived from these elements will not be subject to tax when, as of December 31, 1996, they had a retention period of more than ten years (acquired before 12-31-86).

      • The remaining net gains will be reduced by 14.28% for each year of stay exceeding two.

        Capital gains derived from these elements will not be subject to tax when, as of December 31, 1996, they had a retention period of more than eight years (acquired before 12-31-88).

If improvements have been made in the transferred assets, the part of the disposal value that corresponds to each component thereof will be distinguished for the purposes of applying the provisions of the previous rules.