The past day June 26th, at Ibermutuamur, we had the opportunity to discuss the steps to be taken upon the succession of a Family Business, mentioning all those aspects that need to be addressed at that time and their tax implications.
At the event, we made an effort to summarize our experience in these processes, but of course each case is different and requires personalized treatment in keeping with the circumstances of each company, in which we put all the resources of Arrabe Integra at the service of our client.
In short, in regard to this process, we would point out the importance of good planning ahead of time, so that we can expect a gradual and discreet transition, involving the commitment of all the parties.
It should be noted that there are a series of legal and fiscal resources which, at least for the moment, facilitate these processes, although it is also true that they vary depending on the Autonomous Community in question, due to the impact of the Inheritance and Gift Tax.
The first thing to bear in mind are a series of recommendations which involve: Managing Emotions in a Family Environment; Striking a Balance between Family, Company and Assets; Establishing Management and Governance Rules; Establishing Equitable Remuneration Models. Also through dividends; Professionalize the Administrative Body; Work on the Strategic Vision of the Company; Seek Objectives for Consensus and Family Unity, to achieve this, a good Corporate Social Responsibility (CSR) policy that adds a social dimension to the company generally works well to bring together interests and motivation; Define the role regarding management personnel and in-laws, as well as the expectations for future generations.
Let’s take a look at what the Family Business Regime is, in terms of the Donor who does not have a change in net worth by not being taxed for personal income tax (IRPF), and for the Recipient, who has a reduction of 95% in the Inheritance and Gift Tax which, in the case of the Autonomous Community of Madrid, is compatible with the tax rebate of 99%.
For this, a series of requirements must be met:
- It cannot be a company whose main purpose is the management of Fixed or Movable Assets (Asset Entity).
- The share of the donor or deceased in the entity’s capital must be at least 5% individually or 20% with spouse, ascendants, descendants or relatives of the second degree.
- Exercise of Management Functions, with these being:Chairman, General Director, Administrator, Department Managers, Managing Directors and members of the Board of Directors or an administrative body.
- Age of the Donor (only in the case of gifts).
- The Donor ceases to exercise Management functions (only in the case of gifts) and possible Retirement.
- Assessment of the Transfer price.
- Maintenance assessment (for both Inheritances and Gifts). Recipients must hold what has been received for a period of time established by Law. For example, in the Community of Madrid:
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- Inheritance: 5 years
- Donation: 10 years
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In the case of the Donor, there are a series of resources that facilitate his or her departure, such as the Recovery of Pension Plans and Savings Plans, a 30% Reduction for “Retirement Premiums or Bonuses”, provided this is specified ahead of time. It is also extremely important to plan the Retirement of the Donor since, as a self-employed person, the law has introduced changes as of Law 27/2011 on Pension Reform until Law 6/2017 on Urgent Reforms to Self-Employment. It is important to plan this aspect ahead of time, making correct calculations, since these will determine the lifetime pension to be received.
It must be kept in mind that there are two possibilities facing the Self-Employed upon retirement, which are determined by the compatibility of the retirement pension of the self-employed person:
- Active Retirement:retired persons can collect 50% of the benefits and continue working, paying a contribution for Temporary Incapacity and 8% of the solidarity quota.
- Full Active Retirement: new feature of Law 6/2017 on Reforms to Self-Employment. Retired persons can collect 100% of the benefits and continue working, paying a contribution for Temporary Incapacity and 8% of the solidarity quota.
- In both cases, certain requirements must be met.
Therefore, it there is an aspect to be considered, this aspect is Planning, both in determining the form and the moment of the departure of the Donor (founder, etc…), the remuneration or exit bonus and the future retirement, especially when the current pension system in Spain is raising so many long-term uncertainties.