Patrimonial company in Spain

Dec 31, 2023 | Uncategorized | 0 comments

What is a patrimonial company? Its purposes.

It is one that is not dedicated to developing economic activities as its main activity, but to the administration of assets, generally composed of securities or real estate.

It is defined in article 5, section 2, of the Corporate Tax Law, Ley del Impuesto sobre Sociedades, a patrimonial entity is defined: “A patrimonial entity, which, therefore, does not carry out an economic activity, will be understood as one in which more than half of its asset is constituted by securities or is not attached (…) to an economic activity.”

This means that their main activity consists of managing assets and that they do not carry out any business activities. Therefore, more than half of its assets must be in the form of securities or real estate and not be involved in any economic activity.

The same standard specifies what is meant by economic activity: “Economic activity shall be understood as the organization, on its own account, of the means of production and human resources or one of both with the purpose of intervening in the production or distribution of goods or services.”

For these purposes, the law understands that the leasing of real estate does not constitute an economic activity when there is no person employed with an employment contract and full-time dedicated to this management. There will be economic activity, therefore, when there is at least one person employed with these conditions.

In other words: it is not a specific type of company, but any company that meets that requirement in terms of its assets can be.

The types of patrimonial companies and their constitution

The two typical property companies are those that own family properties either for their use and enjoyment or for rent.

There is no specific procedure to establish a holding company. It is enough to create any type of civil or commercial company, SL, and dedicate less than half of its share capital or assets to economic or commercial activities.

For this reason, the name of patrimonial company is tax in nature. Any company automatically becomes a holding company when more than half of its assets are outside economic activities. And on the contrary: if the proportion changes and the majority of the assets become productive, the company passes to the general regime of commercial companies.

Advantages of holding companies

The effects of holding companies are, above all, fiscal. As for their advantages, they depend especially on the volume of assets assigned to them. This fact means that this figure does not have advantages for smaller assets, which can benefit more if they are managed by individuals themselves.

For the rest of the cases, the most interesting tax advantages are these:

  • The income of holding companies is taxed in Corporate Tax at the general rate of 25%, instead of in Personal Income Tax. In the latter case, if the income is high, it can reach 45%.
  • The property company does not pay Corporate Tax on unproductive properties, while personal income tax is applied to the individual for the second and subsequent homes.
  • Expenses that originate in the company are deducted from the Corporate Tax.
  • They allow individuals to avoid the Wealth Tax.
  • An entire estate can be incorporated into this company, facilitating the succession and inheritance process.
  • Furthermore, it prevents the owner’s responsibilities from affecting his assets, since his creditors cannot claim the company’s assets.

Disadvantages of holding companies

However, these companies also have some disadvantages:

  • As they are not engaged in commercial activity, they do not have access to the bonuses that apply to conventional companies.
  • They cannot benefit from the reductions that individuals have on the net income from renting homes.
  • The constitution of the patrimonial company has some costs and its management is more complex at an accounting and legal level: constitution, annual commercial registration, annual corporation tax…
  • Patrimonial companies are closely monitored by the Treasury, as they seek to prevent them from being used to evade taxes.

For all these reasons, before taking the step of establishing a patrimonial company, it is necessary to study each specific case. This way, you will know if it is more profitable than the rest of the options.

Do not hesitate to call us and we will help you with your Limited Liabillity Company, or with your S.L..

US Tax Consultants +34 915194392


Submit a Comment

Your email address will not be published. Required fields are marked *