The Spanish Supreme Court has clarified an important issue for many family-owned companies, including foreign families and business owners who hold rental properties in Spain through a company.
Until now, one of the most relevant requirements for accessing certain tax benefits was having a full-time employee dedicated to managing the rental activity.
The new point is that the Supreme Court considers that this requirement may be met even if the employee is not directly hired by the company that owns the properties. If the company forms part of a corporate group and the management is carried out jointly, the employee may be hired by another company within the group.
This criterion may be especially relevant for foreign-owned companies in Spain, including small structures with one or two employees, family companies that hold real estate assets or groups that may eventually plan to transfer the business or assets to the next generation.
Employee requirement in real estate rental companies
In companies engaged in the rental of real estate, the existence of a full-time employee is often an essential element to prove that the company is not merely carrying out passive asset management.
In practice, this requirement can make the difference between considering that there is a real economic activity or understanding that the company is simply managing real estate assets.
This distinction is particularly important for family-owned companies with real estate assets in Spain, as it may affect the application of certain tax benefits linked to business continuity and succession planning.
For foreign families, this point can also be relevant when a Spanish company has been created to hold rental properties, organise investments or structure assets that may later be transferred to children or other family members.
What the Supreme Court says about the employee within the group
The Supreme Court understands that the requirement should not be analysed in a completely isolated way when the rental company forms part of a corporate group with real economic activity.
In other words, it will not always be essential for the employee to be hired directly by the company that owns or leases the properties.
If the rental management is effectively organised within the group, and the human and material resources are centralised in another company, the requirement may be considered fulfilled, if there is real functional integration.
In simple terms: what matters is not only which company has hired the employee, but whether the group genuinely has organised resources to carry out the activity.
This is particularly useful in business groups where administration, staff, accounting or management functions are centralised in one entity, while the real estate assets are held by another company.
Spanish Wealth Tax exemption and Inheritance and Gift Tax reduction
This criterion may be relevant for family-owned companies that apply, or wish to apply, tax benefits related to the transfer of shares.
Specifically, it may affect the analysis of:
- the exemption for shares in Spanish Wealth Tax;
- the 95% reduction in Spanish Inheritance and Gift Tax;
- the planning of gifts or transfers of family shareholdings;
- the valuation of assets used in the business and assets not linked to the business activity;
- and the organisation of real estate companies within family groups.
For this reason, this criterion is not only relevant for large corporate groups. It may also affect foreign families and business owners with several companies, real estate structures in Spain or entities that centralise staff, administration or management.
This can be especially important when the company has grown gradually, when assets have been accumulated over time or when the family wants to prepare a future transfer to the next generation with greater legal and tax certainty.
Tax and asset planning for family-owned companies
This is not only about meeting a formal requirement. The key is being able to prove that there is an organised economic activity that is coherent with the company’s structure.
In Spain, many foreign-owned companies begin with a simple structure. However, over time, they may acquire real estate, hire employees, create additional companies or consider a future transfer of the business to their children.
In these cases, it is advisable to review whether the structure is still appropriate and whether it can support the tax treatment the family expects to apply.
From LEIALTA’s tax and accounting department, we support family-owned companies, foreign investors and corporate groups in reviewing their tax and asset structure. We analyse the application of tax benefits, the classification of business and non-business assets, and the planning of family transfers with legal certainty.
