Confianz

Etiqueta: empresas familiares

  • The TEAC ruling and its impact on family businesses

    The recent ruling of the Central Economic-Administrative Court (TEAC), linked to the tax treatment of family businesses, has set alarm bells ringing in this important sector of the Spanish economy. This decision, published on 24 September, introduces new requirements for accessing Wealth Tax and Large Fortune Tax exemptions. At Confianz, we have analysed its implications and how it affects both families and business structures.

    With more than two years since the introduction of the new Insolvency Act and other legislative changes, such as this TEAC ruling, the tax landscape for family businesses continues to evolve, requiring constant adaptation by business owners and their advisors.

    What does the TEAC ruling establish?

    The key to this resolution lies in how the functions of directors or administrators working in related companies are valued. Until now, it was common for directors of a family company to represent the company in subsidiaries or investee companies without receiving additional remuneration, assuming that this labour was included in their salary as directors. However, the TEAC has determined that these functions should be considered as a related-party transaction and remunerated separately, at arm’s length.

    This means that, if a director represents his company in other investees and does not receive a specific salary for this work, the tax authorities could quantify this activity, impute it to him in his personal income tax return and, furthermore, affect his right to the tax exemptions of the Wealth and Large Fortunes Tax.

    How does this affect family businesses?

    Tax exemptions for family businesses are designed to protect family businesses, which are a pillar of the national economy. These exemptions allow business assets not to be taxed under Wealth Tax and Large Fortune Tax, provided that certain requirements are met: that the manager receives remuneration for his or her burden and that this represents more than 50% of his or her total income.

    With the TEAC’s new interpretation, if it is considered that the administrator should receive a salary for his functions in subsidiaries or investees, and this salary exceeds what he receives from the main company, he could lose access to the exemptions. This does not only affect the administrator, but also all the partners of the family business, as the exemption is collective.

    For example, if the administrator’s salary in the main company is 100,000 euros per year and the tax authorities value his activity in other companies at 110,000 euros, the requirement that the main income comes from the family company would no longer be fulfilled. This would jeopardise the tax exemptions of the entire family structure.

    A challenge for tax and business planning

    This change represents a challenge for family businesses, which must review their tax structures and strategies to avoid future problems. The Tax Agency has already indicated that this resolution opens the door to more rigorous inspections, focusing on the role of directors in related companies and the correct assessment of their functions.

    In this context, a clear and detailed plan to comply with the new requirements is essential. Revising corporate agreements, ensuring adequate remuneration for directors and adjusting corporate structures to these new interpretations are essential steps.

    What can be done about this situation?

    While the TEAC ruling introduces complications, it also provides an opportunity to strengthen the management of family businesses. Some key measures include:

    1. Internal audits : Review the functions of directors and their remuneration in all related companies.
    2. Tax restructuring : Adapt corporate structures to ensure compliance with the new criteria.
    3. Proactive communication with the tax authorities: Provide clear and robust documentation to support business and tax decisions.
    4. Specialised advice: Having experts in tax and business law who can guide family businesses through this process.

    Call for the protection of the family business fabric

    Family businesses represent an essential economic engine in Spain, generating employment and contributing to local development. However, changes such as this one highlight the need for a stable fiscal framework adapted to the particularities of these structures.

    This new scenario requires a combination of foresight, strategy and expert advice. We are here to help family businesses and ensure that they remain a key pillar of our economy.

  • What are the tax benefits for family businesses?

    The family business is an institution in Spain. It is estimated that up to 1.1 million Spanish companies are family businesses, which represents a staggering 89% of the total. In addition to being the majority in total numbers, they also account for 57.1% of private sector GDP and are responsible for 67% of private jobs, with almost 7 million jobs. That is why they enjoy some tax benefits.

    Globally, family businesses are the organisations with the highest turnover and job creation. In the European Union alone, it is estimated that there are 14 million family businesses generating more than 60 million private sector jobs.

    The family business in the legal system

    Despite this obvious importance for the economy, there is no express recognition of family businesses in the Spanish legal system. However, we do find references to this type of company in certain tax regulations that reserve certain advantages for them. We will review them in this article.

    Wealth Tax 

    Family businesses benefit from some tax advantages in the Wealth Tax. To do so, they must meet certain requirements:

    • To dispose of 5% of the company’s capital individually, or 20% jointly by the family group.
    • A member of the family is involved in its management and the remuneration for this work represents at least 50% of his or her total business, professional and personal income.

    If these requirements are met and the entities are not merely holding assets, the shares held in these family companies are exempt from Wealth Tax.

    Likewise, the assets and rights common to both members of the couple are exempt, when they are used in the development of the business or professional activity.

    Inheritance and Gift Tax 

    Inheritance and Gift Tax also establishes state reductions in the case of inheritances or gifts of shares in family businesses. In this case, as the tax is devolved to the Autonomous Communities, it is necessary to review each specific case because there are also autonomous reductions.

    The transfer by inheritance or donation of family businesses enjoys a 95% reduction in Inheritance and Gift Tax. The requirements for this are:

    • The company must carry out an economic activity. In the case of holding companies, those that have the personal and material means to manage their holdings are considered to be carrying out an economic activity. In the case of companies that lease real estate, it is advisable for them to have at least one full-time employee, provided that the number of properties leased and the difficulty of their management justify it.
    • As we have seen in the case of Wealth Tax, the shareholding of the owner in the transferred entity must be at least 5% computed on an individual basis, or 20% at the level of the family group.
    • As in the case of wealth tax, the transferor or one of the members of the family group must exercise management functions and receive remuneration representing more than 50% of his or her business, professional and employment income.
    • The acquirer must keep the shares for between five and ten years, depending on the autonomous community. Only in the case of inheritances can they sell them and use the money received to open a fixed-term deposit, buy another company or invest in investment funds without losing the bonus. However, if you sell them and use up the money received, you will have to repay the tax credit you have received.

    The specific taxation of family businesses and the differences between autonomous communities make it highly advisable to establish tax strategies for the transfer of the company, succession or entry into the management and governance of the company. Professional advice from a consultancy firm specialising in family businesses such as Confianz is essential.