The Treasury eliminates the tax exemptions in the Wealth Tax foreseen for the family business in cases where the ownership does not work in the family business.
The Directorate General of Taxes (DGT) has just established on 1 December in a resolution tougher criteria for accessing this tax benefit. Until now, the owners of a family business were eligible when they stopped working in the business and the reins were taken over, for example, by their wife or children.
This change affects family businesses in which the founder remains the owner of all shares, despite the fact that the management functions and economic activity are carried out by another family member.
How to continue benefiting from these tax exemptions
Following the change in the criteria of the Directorate General for Taxation, the key is that in order to be eligible for exemption from Wealth Tax, the shares in the family business must be held jointly. In other words, they must necessarily belong to more than one member of the family.
There are currently many family businesses in which the founder has left the management of the business in the hands of a son or daughter, but still holds 100% of the shares in the company. If this is the case, he or she will now have to pay wealth tax on these shares. How can this be avoided? Simply transfer 1% of the shares to the son.
From now on, in order to continue to benefit from this wealth tax exemption, the members of the business family in charge of the management must own at least 1% of the shares of the business.
Of course, another option is for the father to keep 100% of the company, run it and make his salary from it his main source of income.
Additional requirements
In order to benefit from this exemption, a number of additional requirements must be met on the date on which wealth tax is due. That is, on 31 December of each year:
- The exempt assets and rights must be used for the pursuit of an economic, business or professional activity that is carried out habitually, personally and directly.
- The economic, business or professional activity must account for at least 50% of the amount of the taxpayer’s general taxable income and savings income. This is a point on which tax planning is important, as it can vary from year to year.
In the case of minors or incapacitated persons who are holders of the family business assets, in order to be eligible for exemption from Wealth Tax, the requirements must be met by their legal representatives.
Deadline: 31 December
This tax development has been made public just a few weeks before the deadline for filing the Wealth Tax for 2023, which is 31 December. It therefore has a major impact on the tax planning of many companies.
The tax office will already apply this criterion for the 2023 tax year. So in these last days of the year it is urgent for many family businesses to make changes in the ownership of the business. The aim should be that at least 1% of the share capital passes into the hands of the second generation when it is the second generation that exercises the management functions.
The expert tax advisory team at Confianz can help you in this process to review your business structure so that your family business continues to benefit from Wealth Tax deductions.