Requirements for applying the exemption

Business and professional assets are exempt l⁽¹⁾ which includes the assets and rights of natural persons necessary for the development of their economic, business or professional activity, provided that this is exercised habitually, personally and directly by the taxpayer and constitutes their main source of income.

The application of the exemption is conditional on the following requirements being met on the tax accrual date (December 31):

1. That the goods and rights are affected by the development of an economic, business or professional activity, in the terms of article 29 of the Personal Income Tax Law and 22 of the Regulation of said tax.⁽²⁾

   It will be understood that the leasing of real estate constitutes an economic activity when the requirement provided for in article 27.2 Law of Personal Income Tax is met, that is, when at least one person is used to organize it. employed with a full-time employment contract.

2. That the economic, business or professional activity to which said assets and rights are affected is exercised in a habitual, personal and direct manner by the taxpayer who owns them.

   However, the assets and rights common to both spouses will be exempt when they are used in the development of the business or professional activity of either of them, provided that the rest of the requirements required by the Law are met.

3. That the economic, business or professional activity constitutes the taxpayer's main source of income.

   It will be understood that the business or professional activity constitutes the main source of income when, at least, 50 percent of the amount of the general tax base and the taxpayer's Personal Income Tax savings, sum of the boxes [0435] and [0460] of the Personal Income Tax declaration comes from net income from the business or professional activities in question.

   For the purposes of calculating the main source of income, remuneration for management functions performed in entities in which, where applicable, shares are held
   exempt from this tax, nor any other remuneration that results from the participation of the taxable person in said entities.

   In cases of lucrative transfers of shares in a family business, to apply the Wealth Tax exemption, it is necessary to compare the remuneration received by the taxpayer with the algebraic sum of all the reduced net income from work and business activities. and professionals.

4. When the same taxpayer carries out two or more business or professional activities on a regular, personal and direct basis, the exemption will cover all assets and rights attached to them, considering that the main source of income is determined by all business income. or professionals of all of them.

Note: In the case of minors or incapacitated persons who are owners of the affected assets, the requirements set out in numbers 2 and 3 above will be considered met when their legal representatives comply with them.

⁽¹⁾ See articles 1 to 3 of Royal Decree 1704/1999, of November 5, which determines the requirements and conditions of business and professional activities and participations in entities for the application of the corresponding exemptions in the Corporate Tax. the Heritage.^(Back)

⁽²⁾ The criteria for assigning assets and rights to the exercise of an economic activity are discussed in Chapter 6 of the Personal Income Tax Manual ^(Back)