Family holding companies in Spain: a tax guide to reorganising the family business

Many business-owning families end up asking the same question: “We have several companies and want to bring them together under a single holding company to simplify management and pay less tax. Can this be done legally in Spain, and what are the risks with the tax authorities?” The short answer is yes, but only if the transaction is driven by genuine economic reasons and if, once completed, the new structure still meets the family business requirements. This guide sets out the essentials and links to the analyses in which we have covered each point in detail.

What a family holding company is

A family holding company is a company whose main assets are shares in other companies, its subsidiaries, and which is controlled by the members of a family. Its role is not merely to “own” those shares but to direct and manage the group: setting the strategy, coordinating the subsidiaries, financing them and deciding what to do with the profits.

The usual starting point is one of these situations:

• Several operating companies owned by the same shareholders, each managed separately.
• An operating company that has gradually accumulated property or cash, in which it makes sense to separate the business from the assets.
• A generation preparing for succession that wants to settle how the business will be divided before the time comes.

What it is for, and what it is not for

Centralising the management of the group. A single company with clear governing bodies directs the subsidiaries. This is the very purpose of a holding company and the first economic reason the tax authorities recognise.

Reinvesting profits without going through Personal Income Tax. If the shareholders receive the subsidiaries’ dividends directly, they are taxed in the savings taxable base of Personal Income Tax (IRPF), at rates ranging from 19% to 30%. If the holding company receives them, Article 21 of the Corporate Income Tax Act (LIS) exempts them where the shareholding is at least 5% and has been held for at least one year. Since 2021 the exemption has been 95%, so that, as a general rule, only 5% of the dividend is taxed: an effective rate of around 1.25% at the general 25% rate. It is important to bear in mind that this is a deferral: when the holding company distributes those profits to the shareholders, they will be taxed under their Personal Income Tax.

Separating risks. Isolating the operating business from the property portfolio or the cash protects what has been built up from the risks of the business. This objective is often better achieved through a demerger than through a holding company, or through both. We explain this in our analysis of the partial demerger of a property rental business (V1956-25).

Organising the succession. Transferring shares in a single parent company is simpler than dividing several companies among several heirs, and it allows arrangements such as the gift of the bare ownership while reserving the usufruct. See lifetime usufruct over company shares and the Wealth Tax exemption.

What a holding company is not: simply a way to stop paying tax. If the sole reason for the transaction is a tax one, the tax authorities may deny the benefits of the restructuring and issue an assessment.

How to set it up tax-neutrally: the FEAC regime

Normally the shareholders contribute their shares in the subsidiaries to a new company in exchange for shares in it. For tax purposes, that contribution is a transfer: if the shares are worth more than they cost, each shareholder realises a capital gain for Personal Income Tax purposes.

To avoid this, there is the special regime for restructurings in Chapter VII of Title VII of the LIS, known in Spain as the FEAC regime. For a holding company it is normally applied through a share-for-share exchange (Article 80 LIS), which requires the holding company to obtain the majority of the voting rights in each subsidiary (or, if it already holds that majority, to increase its stake), or through a non-cash contribution (Article 87 LIS), which, for shares, requires among other things that they represent at least 5% of the subsidiary and have been held for one year. If the requirements are met, the shareholder is not taxed at the time of the contribution, and the new shares keep the tax value and acquisition date of the old ones.

Two conditions are decisive:

1. Valid economic reasons (Article 89.2 LIS). The transaction must pursue something more than a tax advantage: centralising management, professionalising the running of the business, facilitating financing or the entry of new shareholders, organising the succession. If the tax authorities consider that the main purpose was a tax one, they will remove the advantage obtained.
2. Notification to the Spanish Tax Agency (AEAT). The regime applies by default unless expressly waived, but the acquiring company must notify the transaction to the Spanish Tax Agency within three months of the registration of the deed. Failing to do so does not prevent the regime from applying, but it is a serious infringement punishable by a fine of €10,000 per transaction.

It is advisable to document the economic reasons before the transaction: a report, minutes, a business or financing plan. The same explanation offered years later, during a tax audit, carries much less weight.

The family business exemption requirements in a holding company

The exemption in Article 4.Ocho.Dos of the Wealth Tax Act (LIP) is, in practice, the centrepiece: the 95% reduction in Inheritance and Gift Tax (ISD) also depends on it. In a holding company, its three requirements apply with their own particular features.

1. The holding company must not be an asset-holding company

The entity’s main activity cannot be the management of movable or immovable assets. The law deems this to be the case where, for more than 90 days of the financial year, more than half of its assets consist of securities or are not used in economic activities.

This is the key to any holding company: the shares in the subsidiaries do not count as securities if they confer at least 5% of the voting rights, are held in order to direct and manage the shareholding, the holding company has the material and human resources to do so, and the subsidiaries are not themselves asset-holding companies. A holding company without resources, which merely owns the shares, runs the risk of being classified as an asset-holding company and losing the exemption.

Where a subsidiary is engaged in letting property, a further requirement applies: for the letting to count as an economic activity there must be at least one person employed under an employment contract on a full-time basis. The Supreme Court has accepted that this requirement can be met at group level and has clarified how the contract must be proven.

2. The shareholding must be large enough

Each shareholder must hold at least 5% of the holding company, or 20% jointly with their spouse, ascendants, descendants or second-degree collateral relatives.

3. Someone in the family group must manage the business and be paid for it

At least one person in the family group must effectively perform management functions in the entity and receive for this more than 50% of their business, professional and employment income. It is during the reorganisation that this requirement is most easily broken:

• The year of incorporation. If the holding company is set up mid-year, the salaries received earlier from the subsidiaries may exceed those from the holding company. The Directorate-General for Taxes (DGT) has clarified that, in that year, the earlier income from the subsidiaries must not be counted (V0145-26).
• Moving management to the holding company. When the holding company becomes the director of a subsidiary in which other family members still hold shares directly, those family members may be left with no one meeting the requirement in that subsidiary and lose the exemption (V0354-26).

The exemption is almost never total

Even if all three requirements are met, the exemption only covers the part of the value of the shares that corresponds to assets needed for the activity, less the debts arising from it. Cash with no documented purpose, properties used by the family or financial investments reduce that percentage. We explain this with an example in inspections of large fortunes: the scope of the exemption.

The holding company and the succession

The 95% reduction in Inheritance and Gift Tax provided for in state legislation (Articles 20.2.c and 20.6 of Law 29/1987) requires, among other conditions, that the shares transferred qualify for the Wealth Tax exemption. That is why a mistake in the structure of the holding company costs little each year and a great deal on the day of the succession.

For lifetime gifts, state legislation also requires the donor to be 65 or older or to have an absolute permanent disability or severe disability (gran invalidez), to stop performing management functions and receiving remuneration for them, and the donee (spouse, descendant or adopted child) to keep what has been received, and the right to the Wealth Tax exemption, for the following ten years. On inheritance, the heir must also keep what has been received for ten years. The autonomous regions may introduce more favourable rules; in the Balearic Islands, the inheritance and gift tax reliefs in force since 2025 have changed the calculation significantly.

The most common risks with the tax authorities

1. No economic reason. Setting up the holding company shortly before selling a subsidiary, or with the sole aim of receiving dividends tax-free, is the scenario most often disputed.
2. A holding company without resources. Without a real organisation to manage the shareholdings, the holding company may be treated as an asset-holding company.
3. Management poorly allocated between the holding company and the subsidiaries, with part of the family losing the exemption.
4. Non-business assets accumulated in the holding company or the subsidiaries, which reduce the exempt percentage.
5. Remuneration and transactions between group companies not documented at market value.
6. More scrutiny. The Spanish Tax Agency has stepped up its checks on large fortunes and on the use of companies to reduce Personal Income Tax and Wealth Tax.

How to approach the transaction step by step

1. Initial assessment. Which companies exist, who owns what, who manages each one, which assets are not used in the business and what each shareholder’s exempt percentage is today.
2. Design. Holding company, demerger or both; which subsidiaries are included; who will manage each company afterwards.
3. Economic reasons in writing, before signing.
4. Simulation person by person and entity by entity. Check that no family member loses the exemption in the resulting scenario, including in the first year.
5. Execution: deeds, registration and notification to the Spanish Tax Agency.
6. Annual review of the business use of assets, management functions and remuneration.

Frequently asked questions

Is it legal to set up a holding company to pay less tax?

It is legal to set up a holding company for economic reasons, and it is legitimate for it also to have favourable tax effects, such as the deferral of dividends. What is not accepted is for the tax advantage to be the main purpose of the transaction.

When does a holding company make sense?

When there are several companies or the aim is to separate the business from the assets, when profits are going to be reinvested rather than distributed to the shareholders, and when the succession is being prepared. With a single company that distributes all its profits, the advantage is usually small compared with the cost of maintaining two structures.

Will I be taxed when I contribute my shares to the holding company?

No, if the transaction correctly qualifies for the FEAC regime. In that case the gain is deferred until the new shares are transferred.

Can I be paid my salary by the holding company?

Yes. For the Wealth Tax exemption, the remuneration for management functions may come from the holding company, provided those functions are real and the remuneration exceeds 50% of your business, professional and employment income. Particular care is needed in the year of the transaction and regarding the position of the rest of the family.

Is the family business exemption lost when a holding company is set up?

Not necessarily, but it can be lost, for the shareholder who sets it up or for other family members, if the holding company has no resources, if management is poorly allocated or if non-business assets build up. That is why it is advisable to simulate the outcome before carrying out the transaction.

How we work at Vicens Advisors

At Vicens Advisors we review family business reorganisations person by person and entity by entity: the starting position, the resulting scenario and the first financial year after the transaction. The aim is for the holding company to fulfil its economic purpose without any family member losing the Wealth Tax exemption or the Inheritance and Gift Tax reduction.

LEGAL NOTICE

This content is provided for information purposes and does not constitute tax or legal advice. It is based on Spanish state legislation and on the administrative and judicial criteria cited, in force at the date of publication. Regional legislation may change some of the requirements described. Each family and business situation requires a specific analysis.

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