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More than 50% of entrepreneurs are not aware that they can benefit from the family business tax regime which offers tax relief

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Yago Martos analyzes the aftermath of the pandemic on family-owned businesses

Family businesses account for 57 % of national GDP. They represent around 88% of all companies at the national level. In the pre-pandemic period, when "normality" was normal, they created around 67% of private employment; more than 6.58 million jobs. Following the eruption of COVID-19, 50% of them were forced to take redundancies, cutting, on average, 15% of their workforces.

Family businesses are the driving force behind Spain's business fabric. And in these times of pandemic, they are still struggling to keep their businesses running. Their adaptation is coming from experts who are helping them to understand the new regulatory framework.

For Yago Martos, partner in Andersen's Tax Department, family businesses have undoubtedly been severely affected by the after-effects that the pandemic is leaving on the economy. Specifically, as can be seen in the report of the survey of family businesses presented at the 23rd Family Business Congress, 82% of these companies have drastically altered their business strategy and have been forced to make cuts of all kinds to emerge stronger.

For this expert, companies now need the different governments to "row" in their favour and implement the necessary packages of measures, focusing maximum attention on family companies and small businesses.

This jurist recalls that in other EU countries they are giving direct aid to trade, which covers significant percentages of the turnover lost due to the crisis, help for business rentals, as well as other fixed costs, and ICO loans with a 10-year repayment period.

Along with these, he highlights the VAT reductions to promote trade, the consideration of losses for stock accumulated during the seasons in which it was compulsory to close, exemptions for online sales and a host of possible measures that would undoubtedly alleviate the current situation.

Regarding tax increases, he stresses that the new tax framework, far from contributing to the continuity of family businesses and facilitating the overcoming of the crisis, limits and hinders their survival, hindering the economic recovery that Spain so desperately needs.

This tax expert gives an example: "the exemption applicable to corporate income tax on dividends and capital gains derived from the transfer of shares, both regulated in article 21 of the Corporate Income Tax Law and currently applicable at 100%, has been limited to 95%".

The way most Family Groups are currently structured, in which there is a parent company and several subsidiaries, even at different levels, "this reduction in the exemption will have a multiplying effect on the tax cost of dividends that have already been taxed in the entity generating the profit", he warns.

Martos also explains that, in companies with a subsidiary abroad, and that after having been taxed in the local country, when distributing the dividend to its Spanish parent company, the dividend will be partially taxed again, when up to now, if certain requirements were met, it was totally exempt, thus penalising the internationalisation of Spanish Family Groups.

Yago Martos is in favour of homogenising the Inheritance and Gift Tax and Wealth Tax downwards, commenting that both taxes should be subject to a profound reform and homogenisation between autonomous communities, but not upwards, but downwards.

In his opinion, it makes no sense to have to pay tax on what a parent, for example, already paid tax on in their day, or that the death of a close relative can cause their heirs a real headache, in many cases leading them to reject the inheritance as they are unable to pay the inheritance tax.

The full article can be read in Confilegal

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