Owners of leased properties without employees cannot apply tax neutrality

The Directorate General of Taxes (DGT) has delimited the requirements necessary for the contribution of assets to a company to qualify for the tax neutrality regime provided for in the Corporate Income Tax Law (LIS).

What the DGT has resolved

In a recent ruling, the advisory body analyzed whether the contribution of a set of leased properties, along with their organizational and financial elements, can be classified as a contribution of a branch of economic activity according to Article 87 of the LIS. The criteria establish that, for the real estate leasing activity to have an economic nature, there must be a structure that includes, at a minimum, one person employed under a labor contract on a full-time basis.

Since there is no labor personnel, the DGT determines that the income obtained derives from the exploitation of real estate capital and not from an economic activity. Consequently, the operation does not meet the requirements to apply the special tax neutrality regime.

What this means for you

This resolution has a direct impact on taxpayers who manage their properties directly or through structures that do not include labor hiring. If you decide to contribute real estate to a company to professionalize its management, you must take the following into account:

• Immediate taxation: As tax neutrality cannot be applied, the taxpayer making the contribution must pay tax on the capital gain or loss resulting from the operation.
• Nature of the income: Rental income without dedicated staff is considered real estate capital income, which prevents its classification as a branch of economic activity for the purposes of the LIS.
• Impact on the receiving company: The company receiving the assets will not be able to benefit from the tax neutrality regime if the contribution does not meet the economic activity requirement.

What should be done

In the event of such an operation, it is necessary to evaluate the management structure of the properties. The existence of labor personnel with a full-time contract is a determining factor for the activity to be considered economic and, therefore, allow access to the LIS regime. It is recommended to assess the situation of each asset and the cost structure before proceeding with the contribution of assets to a legal entity.