Donors of shares must perform management functions to apply the 95% reduction

Planning the transfer of family businesses requires strict compliance with regulations to access significant tax benefits. The application of the 95% reduction on the donation of shares is subject to a series of requirements that link both the entity's activity and the donor's personal situation, as well as the donee's holding period.

What the DGT has ruled

The Dirección General de Tributos (DGT) has clarified that, to apply the reduction provided for in Article 20.6 of the Inheritance and Gift Tax Law (LISD), it is essential that the donor's exemption from Wealth Tax (Impuesto sobre el Patrimonio) is met. In situations where donors are part of a kinship group, the regulations allow the management requirement to be fulfilled if at least one of them performs management functions and receives the corresponding remuneration.

The ruling emphasizes that the fulfillment of these management functions and the receipt of remuneration must be effectively verified at the exact moment the donation occurs. Furthermore, the benefit is not immediately consolidated, as the donee is obliged to maintain what was acquired and preserve the right to the Wealth Tax exemption for a period of ten years.

What this means for you

If you are a donor of shares in a family business, you must ensure that your wealth situation and your role in the management of the entity comply with current regulations before formalizing the transfer. The relevance of this criterion lies in the following points:

• Family management: If the donation is made within a kinship group, it is sufficient for one member of the group to perform management functions and receive their remuneration.
• Moment of verification: The status of director and the remuneration must be real and verifiable at the instant of the donation.
• Donee's commitment: The recipient of the shares assumes the responsibility of maintaining ownership and the wealth tax exemption for a decade.

What should be done

Given the complexity of these requirements, it is necessary to evaluate the company's management structure and the tax situation of the donors before proceeding. The correct accreditation of management functions and the adequacy of the entity's activity for the Wealth Tax exemption are critical elements to avoid contingencies with the Tax Administration. It is recommended to analyze each case individually to ensure that all deadlines and holding conditions required by law are met.