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Practical Heritage Manual 2022.

Requirements and conditions for the exemption to apply

For the exemption to apply, the following requirements and conditions must be met on the tax accrual date (December 31):

  1. That the entity, whether corporate or not, carries out an economic activity and does not have as its main activity the management of movable or real estate assets.

    It will be understood that an entity manages movable or real estate assets and, therefore, does not carry out an economic activity when any of the following conditions exist for more than 90 days of the fiscal year:

    • That more than half of its assets are made up of securities or

    • That more than half of its assets are not assigned to economic activities.

      To determine if there is economic activity or if a property element is affected by it, the provisions of the Personal Income Tax will be followed. See for these purposes articles 27 and 29 of the Personal Income Tax Law and 22 of the Personal Income Tax Regulations .

    Both the value of the asset and that of the assets not used in economic activities will be deduced from the accounting, provided that it faithfully reflects the true asset situation of the company.

    For the purposes of determining the part of the asset that is constituted by values or assets not assigned , the following values will not be computed:

    • Those held to comply with legal and regulatory obligations.

    • Those that incorporate credit rights arising from contractual relationships established as a consequence of the development of economic activities.

    • Those owned by securities companies as a consequence of the exercise of the activity constituting their object.

    • Those that grant at least 5% 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 entity participated is not included in this letter.

      Without prejudice to the foregoing, those whose acquisition price does not exceed the amount of the undistributed profits obtained by the entity will not be computed 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 benefits obtained both in the year itself and in the last 10 previous years.

      For these purposes, the dividends that come from the securities referred to in the last paragraph of the previous paragraph are assimilated to the profits from economic activities, when the income obtained by the investee entity comes, at least 90 percent, from carrying out economic activities.

  2. That the participation of the taxpayer in the capital of the entity is at least 5 per 100 , computed individually, or 20 per 100 jointly with your spouse, ascendants, descendants or second-degree collaterals, whether the relationship originates from consanguinity, affinity or adoption.

    When the participation in the entity is joint with one or some of the previously indicated persons, the management functions and the remunerations derived from it must be carried out by at least one of the persons in the kinship group, without prejudice to the fact that all of them are entitled to exemption. 

    The exemption contained in article 4. Eight. Two of the Wealth Tax Law is not understood to be applicable to participatory loans contracted with commercial entities, with or without listing on organized markets, under the conditions provided for in the aforementioned provision, given that participatory loans are not comparable and with own funds of commercial entities. Criterion established in FJ.3 by the Supreme Court in its Ruling of March 30, 2021, issued in the cassation appeal 5341/2019 (ROJ 1255/2021).

  3. That the taxpayer effectively exercises management functions in the entity . For these purposes, the positions of: President, General Director, Manager, Administrator, Department Directors, Directors and members of the Board of Directors or equivalent body, provided that the performance of any of these positions implies effective intervention in the company's decisions.

    In the event that the holders of the shares or participations are minors or people with disabilities, this condition will be considered met when their legal representatives comply with it.

  4. That , for the management functions performed in the entity, the taxpayer receives a remuneration that represents more than 50 percent of their total income net of work and economic activities corresponding to the fiscal year 2022.

    What is relevant is not so much the title of the position, but rather that said position involves administration, management, direction, coordination and functioning functions of the corresponding organization. Criterion established by the Supreme Court in a ruling of January 18 regarding the appeal for cassation for the unification of doctrine 2316/2015.

    For the purposes of determining said percentage, the income from economic activities carried out habitually, personally and directly by the taxpayer whose assets and rights benefit from exemption from this Tax will not be computed.

    When the same person is the direct owner of shares in several entities in which the aforementioned requirements and conditions are met, the calculation of the 50 percent percentage will be carried out separately with respect to each of said entities. That is, without including among the income derived from the exercise of management functions those obtained in other entities.

Attention: Once the aforementioned requirements have been met, the exemption may apply, in addition to the holder of full ownership or bare ownership of the shares and participations, the holder of the life usufruct right over them.