4.2.8.1. Conditions for exemption from participation in entities

For the exemption to be applicable, the following conditions must be met on the date of accrual of the Tax (December 31):

1. ENTITY THAT CARRIES OUT AN ECONOMIC ACTIVITY

   The entity, whether corporate or not, must effectively carry out an economic activity and must not have as its main activity the management of movable or immovable assets.

   An entity will be deemed to manage movable or immovable assets and, therefore, not carry out an economic activity when any of the following conditions occur for more than 90 days of the financial year: 

   That more than half of its assets consist of securities or that more than half of its assets are not affected by economic activities. 

   To determine whether there is economic activity or whether a patrimonial element is affected by it, the provisions of the Personal Income Tax will be followed. 

   The value of both the assets and the assets not affected by economic activities will be the value deduced from the accounting, provided that the latter faithfully reflects the true financial situation of the company.

   For the purposes of determining the portion of the assets that is made up of securities or unaffected assets:

   1. The following values will not be counted:

      • Those possessed to comply with legal and regulatory obligations.
      • Those that incorporate credit rights arising from contractual relationships established as a result of the development of economic activities.
      • Those held by securities companies as a result of the exercise of the activity constituting their purpose.
      • Those that grant at least five percent of the voting rights and are held for the purpose of directing and managing the participation, provided that, for these purposes, the corresponding organization of material and personal means is available, and the participating entity is not included in this section.
   2. Those whose acquisition price does not exceed the amount of undistributed profits obtained by the entity will not be counted as securities or as elements not affected by economic activities, provided that said profits come from the performance of economic activities, with the limit of the amount of profits obtained both in the year itself and in the previous 10 years. For these purposes, dividends from the securities referred to in the last paragraph of the previous section are considered to be profits from economic activities, when the income obtained by the participating entity comes, at least, 90% from the performance of economic activities. 
2. MINIMUM PARTICIPATION IN THE ENTITY

   The taxpayer's participation in the capital of the entity must be at least 5%, computed individually, or 20% jointly with his/her spouse, ascendants, descendants, or second-degree collateral relatives, whether the relationship is based on consanguinity, affinity, or adoption.

3. EXERCISE OF MANAGEMENT FUNCTIONS

   The taxpayer must effectively exercise management functions within the entity.

4. REMUNERATION OF MORE THAN 50 PERCENT

   For the management functions performed in the entity, the taxpayer must receive remuneration that represents more than 50% of the total of his/her income from work and economic activities, corresponding to the year 2019.

   For these purposes, the income from economic activities whose affected assets and rights enjoy exemption from this tax will not be computed.

   When participation in the entity is joint with the spouse, ascendants, descendants, or second-degree collateral relatives, whether the relationship is based on consanguinity, affinity or adoption, the management functions and the remuneration derived from them must be fulfilled by at least one of the persons in the kinship group, without prejudice to the fact that all of them have the right to exemption.