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V2031-22 21 September 2022 · SG de Impuestos Patrimoniales, Tasas y Precios Públicos Criterion in force
IP · exención

Management and lease administration functions cannot be held by the same person for Wealth Tax exemption

Sisters consult whether their holdings in a real estate leasing entity are exempt from Wealth Tax. The DGT explains that for leasing to constitute an economic activity, a full-time employee is required, but warns that management functions and activity administration functions cannot be exercised by the same person.

The question raised

Question posed: Compliance with the requirements provided in Article 4. Eight. Two of the Wealth Tax Law so that the holdings in entity A are exempt, given that entity A has a person hired full-time to manage the leased properties, and this same person also performs the management duties in the entity, receiving more than 50 percent of their total employment income for doing so.

The DGT's ruling

For real estate leasing to constitute an economic activity, there must be at least one person with a full-time employment contract. The management functions and the administration functions of the leasing activity cannot be held by the same person, as full-time administration is incompatible with other functions. Furthermore, regarding the remuneration requirement, reduced net income from employment, business, and professional activities must be calculated, including pension plan income if classified as employment income.

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