Ruth Goldberg is Argentinian, has lived in Barcelona since 2015 and owns 60 % of a private limited company that develops logistics software; her husband owns another 10 % and the rest belongs to two investor partners. Ruth is the chief executive and is paid 110,000 € a year for that position. She also invoices about 25,000 € a year as an independent consultant and receives dividends. On 31 December 2025 the company had assets of 2,500,000 €, including a 500,000 € flat on the coast used by the family and 300,000 € in funds. Someone told her that her company "is exempt because it is a family business". It is, but not entirely, and the flat has a lot to do with it.
The exemption exists, but with conditions
Article 4.Ocho.Dos of Law 19/1991 exempts full ownership, bare ownership and lifetime usufruct of holdings in entities, whether listed or not, if three conditions are met at the same time. The requirements are developed in Royal Decree 1704/1999.
| Requirement | What the law demands | How Ruth meets it |
|---|---|---|
| Business activity | That the entity's main activity is not managing a portfolio of securities or property | The company develops and sells software |
| Holding | At least 5 % individually or 20 % together with spouse, ascendants, descendants or relatives to the second degree by blood or marriage | 60 % individually |
| Management and remuneration | Performing management functions and being paid for them more than 50 % of total business, professional and employment income | 110,000 € out of 135,000 €: 81.5 % |
When a company is regarded as an asset-holding company
The law considers that the entity manages assets, and loses the exemption, when for more than 90 days of the financial year either of these two situations occurs: more than half of its assets are securities, or more than half of its assets are not used in business activities. Securities and business use are measured with the IRPF (Spanish personal income tax) rules and with the accounts, if they give a true picture of the situation.
In Ruth's company, the flat used by the family is not used in the business, and the funds are securities. Together they come to 800,000 € out of assets of 2,500,000 €, 32 %. They do not reach half, so the company is not an asset-holding company and the exemption is possible.
The law also has a way out for companies with accumulated profits: assets bought with undistributed profits from business activities are not counted as securities or as assets not used in the business, up to the profits obtained in the year and in the ten previous years. It is a very useful rule and one that is very poorly documented in practice, because it requires tracing what money each asset was bought with.
Remuneration: what counts and what does not
The remuneration condition is calculated only on business, professional and employment income. In Ruth's case:
- Remuneration for management functions: 110,000 €.
- Professional income from her consultancy: 25,000 €.
- Total income that counts: 135,000 €.
- Percentage of management remuneration: 110,000 ÷ 135,000 = 81.5 %.
Dividends and rents are not included in the calculation. If the consultancy had grown to 120,000 €, management would have fallen to 47.8 % and the exemption would have been lost that year, even though nothing had changed in the company. It is the requirement that most often breaks without anyone noticing.
When the holding requirement is met as a family group, it is enough for one of its members to meet the management and remuneration conditions, and every member of the group can apply the exemption. If Ruth had 3 % and her husband 20 %, the group would exceed 20 %, and it would be enough for one of the two to meet the management condition.
The exemption is proportional: Ruth's calculation
Even if the three requirements are met, the exemption does not reach the whole value of the shares. It only covers the part corresponding to the proportion between the assets needed for the activity, less the debts of the activity, and the entity's net worth.
First the shares have to be valued under article 16.Uno. As the company's accounts are not audited, the highest of three values is taken:
- Nominal value of all the shares: 100,000 €.
- Book value according to the last balance sheet: assets of 2,500,000 € less 300,000 € of debts, 2,200,000 €.
- Capitalisation at 20 % of the average profits of the last three financial years: profits of 300,000, 350,000 and 400,000 €, an average of 350,000 €, which at 20 % gives 1,750,000 €.
The highest is the book value: 2,200,000 €. Ruth's 60 % is worth 1,320,000 €.
Then, the exempt proportion:
- Assets needed for the activity: 2,500,000 − 800,000 = 1,700,000 €.
- Less the debts of the activity: 300,000 €. Result: 1,400,000 €.
- Divided by the company's net worth, 2,200,000 €: 63.64 %.
- Exempt part of Ruth's shares: 1,320,000 × 1,400,000 ÷ 2,200,000 = 840,000 €.
- Taxable part: 480,000 €.
In practice, the flat and the funds are taxed in Ruth's Modelo 714 through her shares. The guide on the market value of unlisted shares explains the valuation rules in more detail.
A change in remuneration, a purchase of financial assets with the company's cash or a property that is no longer used in the business can cause the exemption to be lost in a particular year. It cannot be guaranteed from one year to the next: the requirements have to be reviewed with the figures at each 31 December.
If you carry on the activity as an individual
For the self-employed and professionals without a company, article 4.Ocho.Uno exempts the assets needed for the activity, provided it is carried on habitually, personally and directly and is the main source of income. To measure that main source, remuneration for running exempt entities and other income derived from holdings in them is not counted. The couple's jointly owned assets used in the activity of either spouse can also be exempt.
Why this exemption weighs more than in other taxes
Besides the saving in wealth tax, meeting the requirements of article 4.Ocho is usually the gateway to reliefs in inheritance and gift tax when the shares are passed on to the next generation. One badly documented year can later complicate a planned gift. We deal with it in the guide on the family business and wealth tax.
Debts that financed exempt shares are not deducted either, in the same proportion: we look at that in which debts I can deduct. And if the company is listed or you also have funds and shares, the valuation rules for those other securities are in how shares and funds are valued.
What is usually missing from a file
To review the exemption we need the balance sheets and accounts for the last few years, a breakdown of the assets showing their use, the register of shareholders, the appointment to the management position and proof of its remuneration, and the holder's income tax return to check the percentage. If you have a company and are unsure whether it qualifies, you can send us those details through the wealth tax form. If the company is foreign, what the other country's company law says about its accounts must be confirmed by the client's adviser there.
The family business exemption, together with the valuation of the rest of your wealth and each region's allowances, is explained on the Salama Tax page on the wealth tax.