Patrimonial entity, patrimonial company, securities holding company, company without economic activity. The heritage society is known by all these names, but what is it really?
In the complex framework of commercial law, asset-holding companies emerge as a fundamental tool for the efficient management of financial assets and property.
In this article, we will explore in depth what a partnership company is and what its main functions and benefits are.
What is a patrimonial company?
It is that company dedicated to the administration of assets, generally composed of securities or real estate.
Legally, according to article 5 of the Corporate Income Tax Law, it is understood as "that which does not carry out an economic activity, that in which more than half of its assets are made up of securities or are not related to an economic activity."
Computed as an active asset:
- 1) the tangible and intangible assets necessary to carry out the company's activity;
- 2) Stocks;
- 3) Commercial debtors;
- 4) and those items receivable as a consequence of economic activity.
If these items already add up to more than 50% , it is not a holding company.
However, the following will not be counted as related to an economic activity, according to the Corporate Tax Law:
«For these purposes, any money or credit rights arising from the transfer of assets related to economic activities or securities referred to in the following paragraph, which have been carried out in the tax period or in the two previous tax periods, shall not be taken into account.
For these purposes, the following will not be counted as values:
- Those held to comply with legal and regulatory obligations.
- Those that incorporate credit rights arising from contractual relationships established as a consequence of the development of economic activities.
- Those owned by securities companies as a consequence of the exercise of the activity constituting their object.
- Those that grant at least five percent of the capital of an entity and are held for a minimum period of one year, with the purpose of directing and managing the participation, provided that the corresponding organization of material and personal means is available, and the participating entity is not, in turn, a patrimonial entity" (art. 5 of the Corporate Tax Law).
What is an economic activity?
«Economic activity shall be understood as the self-employed management of the means of production and human resources or one of both for the purpose of participating in the production or distribution of goods or services. In the case of entities that form part of the same group of companies according to the criteria established in art. 42 of the Commercial Code, regardless of residence and the obligation to prepare consolidated annual accounts, the concept of economic activity shall be determined taking into account all those that form part of the same» (art. 5 Corporate Income Tax Law).
Holding company or asset entity?
Although in everyday language many people use the term “asset company” , the correct term, from a legal and tax point of view, is “asset entity”.
This distinction is not merely terminological, but has important implications that should be clarified.
Key differences between both concepts
- Holding company is a informal or colloquial expression which is used to refer to companies that are dedicated to holding assets (such as real estate or financial assets) without carrying out economic activity.
- Patrimonial entity, on the other hand, is the technical term defined by the Corporate Income Tax Law. According to this rule, a company will be considered patrimonial entity when more than 50% of its assets are not allocated to an economic activity or are made up of non-exempt securities.
So what actually constitutes itself?
In practice, when someone wants to "create a patrimonial company", what they do is constitute an ordinary civil commercial company (usually a limited company, SL).
If this company, already established, meets the tax requirements established by law, the Administration will consider it a holding company for the purposes of Corporate Income Tax.
What is the purpose of a holding company?
The main function of the asset management company is to manage assets.
Therefore, more than half of its assets must be in the form of securities or not be related to any economic activity.
Therefore, it is not a specific type of company, but any company that meets these requirements will be considered as such; being identified as "asset-holding" due to its tax nature.
Since it is intended for "fiscal" use, it may cease to be considered as such when the majority of the assets become productive, passing to the general regime of commercial companies.
Examples and types of holding companies
- Property ownership entity: Organization that exclusively owns family properties for use and enjoyment.
- Real estate rental: Entity that only owns properties intended for rental, without employees under a full-time employment contract.
- Holding assets: Entity that exclusively owns securities and invests in the stock market.
How do you create a holding company in Spain and what are the requirements?
Many people seek to create a holding company in Spain as a way to protect, manage, or transfer their assets, especially real estate or financial assets. However, it is essential to clarify one key issue from the outset:
The concept of a holding company does not exist as a commercial entity; it only has tax effects.
This means that a "asset-holding company" cannot be directly established , as it is not regulated as such under commercial law . However, it is possible to establish an ordinary civil or commercial company (for example, a limited liability company, SL), and if it meets certain requirements established in tax regulations , the Tax Agency will consider it an asset-holding company for tax purposes.
How is a company formed that can become a patrimonial company?
As we mentioned, the incorporation process is the same as that of any civil or commercial company.
The usual steps are:
- Define the corporate purpose: : Normally something generic is included, such as “the management of one’s own assets,” although this is not decisive for it to be considered assets.
- Drafting of the bylaws: It is advisable to adapt the statutes to the purpose of asset management, with clear rules on administration, distribution of profits and transfer of shares.
- Contribution of share capital: Minimum of 3.000 euros in the case of limited companies, although real estate or other assets may be contributed.
- Granting of public deed before a notary y registration in the Commercial Registry.
- Obtaining the NIF and registering with the Treasury, like any other society.
What functions and advantages does a holding company have?
The advantages of property companies depend especially on the volume of assets assigned to them; Therefore, it is logical that they be used for significant assets.
Asset protection
One of the main advantages of a holding company is the protection of assets.
By keeping assets within a separate legal structure, the risk of loss from potential claims or litigation against individual shareholders can be mitigated.
Tax planning
Holding companies offer significant opportunities in terms of tax planning.
They allow the implementation of efficient tax strategies to minimize the tax burden on assets and optimize the tax structure of shareholders.
centralized management
Centralizing wealth management in a separate entity simplifies financial administration and decision-making.
This is especially beneficial when managing diverse assets or properties spread across different geographical locations.
Succession and inheritance
Asset-holding companies facilitate the transfer of assets between generations and help to structure a smooth succession of family wealth.
They guarantee the continuity and preservation of the family legacy over time.
Investment and diversification
By concentrating assets in a separate entity, more diversified and sophisticated investments can be made .
This allows for more effective risk management and optimization of investment portfolio performance.
Tax advantages of holding companies
- The income generated by holding companies is subject to corporate tax at a rate general rate of 25%, In contrast to personal income tax, which, in cases of high income, could reach up to 45%.
- The holding company is not subject to Corporation Tax on properties that do not generate income, while in the case of an individual, personal income tax applies to second homes and additional properties.
- The expenses generated by the company are deductible in Corporate Tax, which allows the tax burden to be reduced.
- Likewise, these companies offer the advantage of avoiding the Wealth Tax that affects individuals.
Disadvantages of holding companies
These companies also have certain limitations:
- Because they are not involved in commercial activities, they do not have access to the benefits and bonuses available to conventional companies.
- They do not have the possibility of benefiting from the tax reductions applicable to individuals in terms of the net income derived from the rental of homes.
- The creation of a patrimonial company involves initial costs and its management entails greater complexity at an accounting and legal level.
- Holding companies are subject to rigorous scrutiny by tax authorities, as they seek to prevent misuse to evade taxes.
For all these reasons, it is crucial to conduct a detailed analysis of each situation before opting to establish a holding company.
Only in this way can it be determined if this option is more advantageous than the other available alternatives.
Conclusions on What is a patrimonial company? What is it for?
A patrimonial company is a versatile and powerful tool in the field of commercial law, designed for the efficient management and protection of assets.
However, it is essential to have the appropriate advice from experts in commercial law and taxation to ensure compliance with the relevant regulations and maximize the benefits derived from its use.
RRYP Global , lawyers for companies.
