Requirements for applying for 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 carried out regularly, 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 date of accrual of the tax (December 31):

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

   The leasing of real estate will be understood to constitute an economic activity when the requirements set forth in article 27.2 of the Tax Law are met, that is, when at least one person employed with a full-time employment contract is used to organize it.

2. That the economic, business or professional activity to which said assets and rights are assigned is carried out regularly, personally and directly by the taxpayer who owns them.

   However, assets and rights common to both spouses will be exempt when used in the development of the business or professional activity of either of them, provided that the rest of the requirements established by 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% of the amount of the general tax base and savings of the IRPF of the taxpayer, sum of boxes [0435] and [0460] of the IRPF 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 that are exempt from this tax, or any other remuneration arising from the taxpayer's participation in said entities, will not be taken into account.

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

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

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

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

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