SPAIN Law and Practice Contributed by: Álvaro Checa, Miguel Checa, José María Vargas-Machuca Reyes and Andrea Fernández Grymierski, KINSHIP
8.2 Legal and Tax Considerations In addition to the next-of-kin tax relief that certain Spanish regions have introduced, the so-called “exemption for family owned and managed busi- nesses” under IHT and GT has also been addressed by the Spanish regions that have relaxed the require- ments or broadened the scope of the central-state- level exemption. At the central state level, the family owned and man- aged business exemption may allow up to 95% exemption from IHT and GT on the value of the shares (or the business in the case of an individual entre- preneur), provided that the company meets certain conditions. These include the following: • The transferor holds at least a 5% shareholding in the company or, together with next-of-kin (includ- ing the spouse), holds at least 20% of the com- pany’s share capital. • The transferor or next-of-kineffectively performs management functions in the directly held entity and receives compensation exceeding 50% of his or her total worldwide professional or employment income. • The majority of the company’s assets are employed in an economic activity. Holding companies may also qualify if they hold more than 5% in subsidiar- ies, provided that the majority of the subsidiaries’ assets are used in an economic activity. • Beneficiaries are generally required to maintain the value of the shares received in their wealth for a period of ten years. If the transfer is carried out by way of an inter vivos transfer, it is additionally required that the donor is at least 65 years old or in a situation of disability and, if the donor performed management functions within the entity, that he or she ceases to carry out such functions. At a regional level, certain Spanish regions have fur- ther regulations that relax these requirements; such as: (a) eliminating the minimum age requirement for the donor; (b) reducing the maintenance period; or (c) increasing the exemption from 95% to 99%.
Where these conditions are met, the transfer is not subject to capital gains tax for the donor, although the tax basis of the shares is carried over for future disposals. 9. Trusts, Foundations and Related Entities 9.1 Choice of Planning Vehicle Both the common law trust and the private interest foundation are unknown legal institutions in the Span- ish legal system. In particular, the trust has no direct equivalent under Spanish civil law. Its core structure, based on the divi- sion of ownership between the trustee’s legal title and the beneficiary’s equitable interest, is conceptually alien to civil law systems and is difficult to transpose into Spanish law. Spain has not ratified the 1985 Hague Convention on the Law Applicable to Trusts and on their Recog- nition and, at present, there are no indications that ratification is forthcoming. Accordingly, Spain cannot be regarded as a trust-friendly jurisdiction and for- eign trust structures may face difficulties when hold- ing Spanish assets, particularly immovable property, as the fiduciary ownership may not access the Land Registry as such. The establishment of private interest (often family) foundations constitutes another form of lifetime wealth structuring. Such vehicles are available in a limited number of jurisdictions, subject to varying degrees of supervision and regulatory control, although they are more commonly encountered in offshore cen- tres where restrictions tend to be less stringent. This model stands in contrast to systems such as Spain’s, which recognise only foundations pursuing purposes of general or public interest. Consequently, foreign private interest foundations are not recognised in Spain and cannot be registered in the Spanish Registry of Foundations, not even through a delegation. In particular, the Spanish Dirección Gen- eral de Seguridad Jurídica y Fe Pública (formerly the Dirección General de los Registros y del Notariado )
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