Wealth Tax exemption for holdings in entities

The Directorate General of Taxes (DGT) has issued a relevant ruling regarding the application of the Wealth Tax exemption concerning holdings in entities, including those civil societies subject to the income attribution regime in Personal Income Tax (IRPF). This pronouncement establishes the strict conditions that must be met so that such holdings are not included in the tax base.

What the DGT has ruled

For holdings in an entity to enjoy the exemption provided for in the regulations, several substantive and formal requirements must be met simultaneously:

• Nature of the activity: The entity's main purpose cannot be the management of movable or immovable property.
• Percentage of participation: The taxpayer must hold, at a minimum, 5% of the holdings individually, or 20% jointly with family members.
• Management function and remuneration: The holder must perform management functions in the entity and receive remuneration that is greater than 50% of their total income, excluding income derived from the exempt activity itself.
• Formal obligation: The assets intended to be declared as exempt must be expressly stated in the tax return.

What this means for you

If you are a partner in an entity or participate in a civil society, the exemption is not automatic. The relevance of this ruling lies in the fact that the nature of the entity's assets and the structure of the partner's remuneration are decisive. If the entity is primarily dedicated to the management of real estate or financial income, the holdings cannot benefit from this treatment, regardless of the ownership percentage.

Furthermore, for individuals, meeting the remuneration threshold for management functions is a critical factor that must be monitored to ensure the consistency of the exemption.

What should be done

It is necessary to verify that the composition of the entity's assets complies with the limits for managing movable and immovable property. Likewise, it must be checked that the remuneration received by the partner meets the requirement of being greater than 50% of their total income. Since the exemption requires a correct declaration of assets, it is fundamental to ensure that the documentation supports the activity and the management performed. It is recommended to assess each particular situation to confirm compliance with current regulations.