A director holding 100 % indirectly may elect the Beckham regime if the entity is not a passive-holding company (V1983-24)

The Spanish Directorate-General for Taxation (DGT), in its binding ruling V1983-24 of 17 September 2024, examines the case of an entrepreneur who would move to Spain to sit on the board of a Spanish subsidiary in which he holds an indirect 100 % interest. The question is whether he may elect the special regime of article 93 of Law 35/2006 of 28 November on Personal Income Tax (LIRPF), known as the Beckham regime.

The DGT recalls that, following Law 28/2022 of 21 December on the promotion of the start-up ecosystem, the director’s shareholding is only limited if the entity is a passive-holding entity. But it does not go on to characterise the planned subsidiary: it merely reproduces an earlier ruling, V0971-24, in which it considered that a holding with similar features might, in principle, not be a passive-holding entity.

The legal framework: before and after Law 28/2022

Article 93.1.b).2 LIRPF allows the regime where the move to Spain results from becoming a director of an entity. In its wording before Law 28/2022, the provision only allowed it if the director held no interest in the entity’s capital or if the interest did not make the entity a related party within the meaning of article 18 of Law 27/2014 of 27 November on Corporate Income Tax (LIS).

The threshold, under the last paragraph of article 18.2 LIS, is a shareholding of 25 % or more. From that percentage, the regime was not available.

Law 28/2022 amended the provision with effect from 1 January 2023. The limitation is no longer general: it only applies where the entity is a passive-holding entity under article 5.2 LIS. In that case, the director may not hold an interest that makes the entity a related party. If the entity is not a passive-holding entity, the law does not limit the director’s shareholding. The change is in line with the aim of Law 28/2022 of attracting entrepreneurs and founders.

The facts

The applicant, a German national resident for tax purposes in the United Kingdom, is the founder and executive director of a Swiss company that invests in early-stage European technology companies (start-ups). The Swiss company plans to set up a subsidiary in Spain to channel its investments in Spanish start-ups, and would contribute to it the Spanish investment it has already made. The subsidiary would be a holding company.

The applicant would hold an indirect 100 % interest in the subsidiary. He would be one of its three board members, all of them remunerated, and administrative functions would be outsourced. As a result of his appointment, he would move to Spain in the second half of 2024 and become tax resident in 2025. He states that he has not been resident in Spain in the five previous tax periods.

The DGT’s answer

The DGT quotes article 93.1 LIRPF and article 9.1, to which the requirement of not having been resident in the previous five years refers. It then recalls that “a causal link between the move to Spain and becoming a director is required” (our translation). That link is a question of fact to be proven before the tax management and audit bodies.

As regards the shareholding, it notes that, following Law 28/2022, “the shareholding that the director may hold in the entity is limited if the entity is a passive-holding entity” (our translation). On the passive-holding question, it reproduces its ruling V0971-24 of 9 May 2024, concerning a director who initially held 100 % of a Spanish holding company being incorporated.

In V0971-24, the DGT quoted article 5 LIS. Paragraph 2 treats as a passive-holding entity one in which more than half of its assets consist of securities or are not used in an economic activity, on the basis of the average of the quarterly balance sheets for the year. Securities that are not counted include, among others, those in letter (d): securities representing at least 5 % of the capital of an entity, held for at least one year in order to direct and manage the interest, provided that the corresponding organisation of human and material resources is in place and the investee is not itself a passive-holding entity.

The holding in that ruling would acquire interests of at least 5 % and, if any were lower, they would never exceed 50 % of its assets. On that basis, the DGT said that “in principle, from the facts described in the request, it could be considered that the holding company to be incorporated would not be a passive-holding entity, although these are questions of fact” (our translation) for the audit bodies to assess.

What the ruling does not say

The DGT does not rule on whether the subsidiary planned by this applicant is a passive-holding entity. It does not examine its expected balance sheet, the size of its interests in the start-ups or the resources it will have. It reproduces V0971-24 and the answer ends there.

If the subsidiary is not a passive-holding entity, the indirect 100 % interest would not prevent the regime. If it were, that interest, well above 25 %, would block it.

Our assessment

In our view, the ruling confirms a reading of article 93.1.b).2 LIRPF that the wording of the law already allows: the percentage held only matters if the entity is a passive-holding entity. The reform shifts the test from the percentage to the nature of the entity’s assets.

The case does, however, raise a difficulty the ruling does not address. A holding that invests in start-ups may take interests below 5 % or lack its own organisation of resources, especially if its administration is outsourced. On the basis of article 5 LIS —not of the ruling—, in that scenario its interests would count as securities and, if they exceeded half of its assets, the company would be a passive-holding entity.

It should also be recalled that article 18.2.c) LIS also treats as related to the entity the relatives of its shareholders or directors. Its effect on the calculation of the article 93 limit has not been examined in this ruling.

Practical consequences

Before the move, it is advisable to check that the entity whose directorship prompts the move will not be a passive-holding entity: what percentage its interests will represent, whether they will be held for at least one year and with what human and material resources they will be managed. That analysis should be documented from the outset.

It is also advisable to monitor the balance sheet throughout the period in which the regime applies. The test is based on the average of the quarterly balance sheets for each year, and an accumulation of cash or minority interests could turn the company into a passive-holding entity and jeopardise the regime for a director holding 25 % or more.

Finally, the causal link between the appointment and the move is a question of fact that should be evidenced with contemporaneous documentation.