Requirements and conditions for the exemption to apply

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

1. That the entity, whether corporate or not, carries out an economic activity and its main activity is not 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. For these purposes, see articles 27 and 29 of the Personal Income Tax Law and 22 of the Personal Income Tax Regulations .

   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.

   In the case of group entities , it is necessary that the requirements contained in article 27. 2 of the Personal Income Tax Law are strictly, directly and exclusively complied with by each of the companies whose exemption is sought, without them being understood to be complied with through a third company that, regardless of the degree of connection it has with the aforementioned companies, carries out the management work. Therefore, for the purposes of determining whether or not the lessor entity (which is part of a Group) has employees, the Supreme Court's labour doctrine of considering the Group of Companies as the sole employer does not apply, so it cannot be said that the lessor has employees because another entity in the Group to which it has entrusted the management of its assets does. See in this regard the criteria established by the TEAC in its Resolution of June 30, 2010 (Claim number 00/03979/2009, and reiterated in its Resolution of March 23, 2011, Claim number 00/00075/2009.

   For the purposes of determining the portion of the asset that is made up of securities or unaffected assets , the following values will not be computed:

   • 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 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 participating entity is not included in this letter.

     Without prejudice to the foregoing, 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.

     This assimilation between dividends from participating entities and profits from economic activities must be extended to income from the transfer of shares in entities, insofar as the aforementioned circumstances occur in these, since said income indirectly represents dividends that may be distributed at present or in the future by the participating entity.

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

   When participation in the entity is joint with one or more of the persons indicated above, the management functions and the remuneration derived from them must be carried out by at least one of the persons in the family group, without prejudice to the fact that all of them have the right to exemption. 

   The exemption contained in Article 4. Eight. Two of the Wealth Tax Law are 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 and the equity of commercial entities are not comparable. Criterion established in FJ.3 by the Supreme Court in its Judgment of March 30, 2021, issued in the appeal for cassation number. 5341/2019 ( ROJ : STS 1255/2021).

   For its part, the Supreme Court's ruling of July 14, 2016, appeal no. 2330/2015 ( ROJ : STS 3776/2016) in its FJ6 establishes that this requirement does not result in the obligation that the subject who exercises the management functions must be the owner of the shares, which may belong to the family group. Once one member of the household meets this requirement, all members of the household will be eligible for the exemption. See in the same sense the Supreme Court Judgment of May 26, 2016, appeal no. 4027/2014 ( ROJ : STS 2378/2016).

3. That the taxpayer effectively exercises management functions in the entity . For these purposes, the following positions will be considered management functions, which must be reliably accredited by the corresponding contract or appointment: President, General Director, Manager, Administrator, Department Directors, Counselors 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 interests are minors or persons with disabilities, this condition will be considered fulfilled when their legal representatives comply with it.

4. That , for the management functions performed in the entity, the taxpayer receives remuneration that represents more than 50% of all of his/her net income from work and economic activities corresponding to the 2023 fiscal year.

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

   For the purposes of determining this percentage, the income from economic activities carried out on a regular, personal and direct basis by the taxpayer whose affected assets and rights enjoy exemption from this tax will not be taken into account.

   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% percentage will be carried out separately for 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 be applied not only by the holder of full ownership or bare ownership of the shares and interests, but also by the holder of the right of life usufruct over them.