Companies may contribute shares of undivided property with tax neutrality

The management of real estate assets under a regime of undivided ownership poses specific challenges in the field of corporate planning. Recently, the Directorate General of Taxes (DGT) has clarified the applicable tax treatment when a company decides to contribute its ideal share of a property to another entity.

What the DGT has resolved

The advisory body has determined that the contribution of an ideal share of an asset in undivided ownership constitutes a non-monetary contribution, in accordance with the provisions of Article 87.1 of the Corporate Income Tax Law (LIS). As it is not considered a line of business, the operation may be eligible for the tax neutrality regime established in Chapter VII of Title VII of the current regulations.

For this treatment to be applicable, the DGT points out that two fundamental conditions must be met:

• The contributing entity must maintain a participation of at least 5% in the equity of the receiving entity.
• The operation must not have the primary objective of tax fraud or evasion.

What it means for you

This resolution allows companies to carry out movements of shared real estate assets without the operation resulting in the immediate inclusion of capital gains in the Corporate Income Tax taxable base. This facilitates the reorganization of real estate portfolios and the consolidation of assets under new corporate structures without generating an immediate tax burden from the delivery of the ideal share.

What should be done

In the event of such an operation, it is necessary to verify that the participation structure strictly complies with the 5% threshold in the equity of the company receiving the property. Likewise, the documentation of the operation must reflect the economic reality of the transaction to prevent the Administration from interpreting that there is an intent of fraud or tax evasion. It is recommended to assess each case individually to ensure compliance with LIS regulations and the Civil Code.