Your company will be considered a holding company for Corporate Income Tax purposes when more than half of its assets consist of securities or items not related to an economic activity. This calculation will be based on the average of the quarterly balance sheets for the fiscal year. Within a corporate group, consolidated quarterly balance sheets will be used. If your company is a holding company, it will be subject to certain tax restrictions.
The use of asset-holding companies to separate personal and business assets has advantages and disadvantages that should be known, but it is also important to know that the Tax Agency monitors these types of companies to ensure that they are not mere shell companies, established solely for tax avoidance or evasion purposes.
In addition, it is also relatively common for certain business groups to establish asset-holding companies, whose purpose is to rent real estate to the group's companies or to other companies.
A holding company is characterized by not primarily engaging in economic or commercial activities to place goods and services on the market. On the contrary, its main purpose is the management of assets, usually consisting of securities or real estate.
The figure of a patrimonial entity, regulated in the Corporate Income Tax Law, is of special relevance for those companies whose main activity consists of the management of movable or immovable assets, without developing an economic activity.
It is important to understand that one does not constitute a "patrimonial company" as such, but rather civil or commercial companies that, in view of their activity and configuration of their patrimony, are considered as patrimonial.
Below, we highlight the key points to keep in mind.
Types of asset-holding companies
- Real estate holding companies. These types of companies only own real estate for family use and enjoyment.
- Real estate rental companies. These companies are dedicated to renting out properties owned by the company. To qualify as a real estate rental company, no one can be employed under a formal employment contract to manage these rentals. If the company that owns and rents the properties has at least one full-time employee, it is considered a non-real estate rental company.
- Asset-holding entities. They are dedicated solely to owning securities and investing in the stock market, without having a business structure or employing workers.
Consideration of patrimonial entity
When calculating your Corporate Income Tax (CIT) for the past year, review your accounts and check if the special tax regime for asset-holding entities applies to you. This will be the case if more than 50% of your company's assets consist of securities or assets not used in any economic activity.
To determine if your company's non-working assets exceed 50% of its total assets, consider the average of the quarterly balance sheets for the fiscal year (not the balance sheet as of December 31). If your company is the parent company of a group of companies, consider the average of the consolidated balance sheets (regardless of whether your group prepares consolidated financial statements). Remember that your company must prepare trial balances at least quarterly, and these are the balance sheets that should be used for this calculation.
Therefore, it's advisable to analyze the quarterly balance sheets at the end of the year to determine whether or not the company qualifies as a holding company. Calculate the average value of the assets in these balance sheets, and if more than half consists of non-business assets, or shares and equity interests, the entity will generally be considered a holding company.
Shares or holdings are considered assets when they represent at least 5% of the capital and are held for at least one year for the purpose of directing and managing the holding, provided that the corresponding organization of material and personal resources is available for this purpose.
Money and credit rights
For these purposes, neither money nor credit rights arising from the transfer of assets related to economic activities or securities, carried out in the tax period or in the two previous tax periods, will be taken into account.
Attention. Both treasury and credit rights arising from transfers of affected assets carried out in the same or the two previous years, or those derived from the ordinary course of business, are considered as affected assets.
Loss of tax benefits or incentives
Your company may be negatively impacted if this tax regime applies to you, as you will lose significant tax advantages . If the company is classified as a holding company, it will not be able to apply the following:
- The special regime for small businesses (accelerated depreciation, leveling reserve…).
- If it has been recently established, in the first two years with profits (the first four if it is a start-up) it will not be entitled to the reduced rate of 15%.
- The regime for foreign securities holding entities (ETVE).
- It will not be possible to offset negative tax bases when the entity is acquired with the intention, on the part of the buyer, of taking advantage of said negative bases.
- The corporate partner may not apply the exemption for the tacit capital gain originating from the transfer of shares with respect to the tax periods in which the entity is considered a patrimonial entity.
- The full exemption to eliminate double taxation cannot be applied in the case of receiving dividends or selling shares, when certain requirements are met.
- You will not be able to apply the reduced rate of 23% (from 1 January 2023 a reduced tax rate of 23% is introduced for entities whose net turnover of the immediately preceding tax period is less than 1 million euros).
Therefore, we recommend that you carefully review your economic activity and consult with our tax experts to determine if your company is classified as a holding company, thus ensuring proper compliance with tax obligations.
You can contact this professional office for any questions or clarifications you may have.
Warm regards,
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A Àmbit Assessor, SL has 40 years dedicated to the tax, comptable and labor consultancy of the Pime.
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