Remuneration and tax benefits of the working partner and manager in the capital company
This article makes a brief analysis of the problems of the legal security has suffered the taxpayer over the juridical consideration of the incomes received by the working members. It was with the crisis, in 2008, and the loss of income of the public treasury and the change of criteria by the Tax Agency. So, I’m going to expose a brief presentation of the essential features of the remuneration of managers and working partners in capital companies and the consequences derived over it. I do this analysis through some simple questions that allow the reader to understand as simple as possible.
I. The remuneration of the business administrator. Free or remunerated?
The position of administrator in capital companies may be performed by receiving remuneration or free of charge. The terms and conditions over it must be incorporated into the company's for that it may be deductible expense in corporation tax (among other purposes).
The remuneration of the managerial post supports a tax retention of 35% every month, as provided in article 80.1.3 of Royal Decree 439/2007, of March 30, which approves the Regulation of Income Tax of Individuals and the Regulations on Pension Plans and Funds approved by Royal Decree 304/2004 of 20 February, except for the case provided in the following paragraph of this article, which establishes the withholding tax at 19%. For this reason, in general, in the case of small and medium companies, the charge of administrator is usually free (without charge).
This circumstance raises three new questions:
1) How can the working partner obtain remuneration for services in the business company?
2) What is the function to be performed over it?
3) How should these income be classified in the IRPF? what would be the fiscal obligations that the working partner must comply?
II. The remuneration of the working partner. What position should you play and why should you be paid?
Over the first question of the last paragraph of the previous epigraph, it’s evident the services provided to the company by the working partner gives right to receive remuneration, except pact to the contrary, by virtue of the principles of reciprocity and onerousness; and it’s by the application of the tax rules on transactions between partners (persons and companies).
Intrinsically linked to this idea, it is proposed the position that should be performed over it. Usually, the service is the same that the business company. For example, if the corporate purpose and the tax register include the business of an electrician, this will be the service usually provides to the company (unless otherwise agreed) and will generate the right to obtain remuneration. It is also usually considered the service of senior management or management (but it’s necessary to comply the requirements required by labor law) that can be performed exclusively or jointly with the main economic activity of the company.
III. The legal-tax typification of the remuneration of the working member.
As a preliminary point, it should be pointed out that the legal nature of the income received by the working partner in the IRPF requires assessing the legal requirements and the circumstance of every case with the position held and the economic activity carried out by the company.
For that reason, it’s going to make a general statement of the legal typification of the income received by the working partner. The circumstances and legal considerations concurrent in each case should be carefully analyzed.
Article 27.1, third paragraph of Law 35/2006, of November 28, on Personal Income Tax and partial amendment of the Laws on Corporate Income Taxes, Income from Non-Residents and on Equity provides:
"However, in the case of income obtained by the taxpayer from an entity in whose capital it participates derived from the activities included in Section Two of the Tax Tariffs on Economic Activities, approved by Royal Legislative Decree 1175/1990, of September 28, will have this consideration when the taxpayer is included, for this purpose, in the special social security scheme of self-employed or self-employed workers, or in a social security mutual fund that acts as an alternative to the aforementioned special regime as provided for in the fifteenth additional provision of Law 30/1995, of November 8, on the management and supervision of private insurance."
Therefore, if the services provided to the company include professional activities (Telecommunication Technicians, Lawyers, Doctors, Veterinarians, Engineers, etc.) are included in the second section of the Taxes on Economic Activities, the rents obtained will be considered income from economic activities with the consequent obligation to comply with the legal and tax requirements derived therefrom.
In such a case, the partner is considered as a stranger in the tax law, althought is the administrator and owning the company (in the percentages in question). And he must fulfill all his individual tax obligations, in addition to which must be carried out by the company. It deprives the incentive to use this legal structure, beyond the limited liability that could be solved through other legal instruments.
On the other hand, if the services provided by the working partner in the company are not included in the second section of the tax on economic activities, the income received will be classified as labor income.
In these cases, the working partner will receive monthly income assimilated to a salary, even if he is quoted by the RETA, in the Social Security. Added to this are the advantages of being able to benefit from tax exemptions and limitations on salary payments, locomotion, tickets, non-cash income, etc.
IV. CONCLUSIONS
The beginning of an economic activity through an individual company or through any corporate figure, and especially through a capitalist company, requires an good legal-tax planning (in addition to legal and labor planning) in order to take care of the circumstances of the company with the fulfillment of the requirements legally required by the tax legislation.
The legal provision contained in the article.primero.Deciséis of Law 26/2014, of November 27, has clarified the legal typification of the remunerations of the working partners that essentially will be income from economic activities as contemplated in the second section of the rates of the Tax on Economic Activities, and labor income for those not provided for therein.
The remuneration derived from the managerial position must be reflected with due rigor in the bylaws. In general, it depends of the profits of the company, it should be done free or not, and each case should be analyzed.
Finally, some questions could be formulated on the usefulness of mercantile companies in Spain and the possible use of other fiscal and business planning options. There are other alternatives to the Spanish limited liability company, depending on the activity carried out by the company, the national or international scope of the company, whether it operates one or several partners, size of the company, etc. It’s to avoid fiscal costs, social security cost, excessive bureaucracies, legal security, etc.
Do you need to plan your business in the legal, fiscal and labor field? You can contact me in the following contact form.
I. The remuneration of the business administrator. Free or remunerated?
The position of administrator in capital companies may be performed by receiving remuneration or free of charge. The terms and conditions over it must be incorporated into the company's for that it may be deductible expense in corporation tax (among other purposes).
The remuneration of the managerial post supports a tax retention of 35% every month, as provided in article 80.1.3 of Royal Decree 439/2007, of March 30, which approves the Regulation of Income Tax of Individuals and the Regulations on Pension Plans and Funds approved by Royal Decree 304/2004 of 20 February, except for the case provided in the following paragraph of this article, which establishes the withholding tax at 19%. For this reason, in general, in the case of small and medium companies, the charge of administrator is usually free (without charge).
This circumstance raises three new questions:
1) How can the working partner obtain remuneration for services in the business company?
2) What is the function to be performed over it?
3) How should these income be classified in the IRPF? what would be the fiscal obligations that the working partner must comply?
II. The remuneration of the working partner. What position should you play and why should you be paid?
Over the first question of the last paragraph of the previous epigraph, it’s evident the services provided to the company by the working partner gives right to receive remuneration, except pact to the contrary, by virtue of the principles of reciprocity and onerousness; and it’s by the application of the tax rules on transactions between partners (persons and companies).
Intrinsically linked to this idea, it is proposed the position that should be performed over it. Usually, the service is the same that the business company. For example, if the corporate purpose and the tax register include the business of an electrician, this will be the service usually provides to the company (unless otherwise agreed) and will generate the right to obtain remuneration. It is also usually considered the service of senior management or management (but it’s necessary to comply the requirements required by labor law) that can be performed exclusively or jointly with the main economic activity of the company.
III. The legal-tax typification of the remuneration of the working member.
As a preliminary point, it should be pointed out that the legal nature of the income received by the working partner in the IRPF requires assessing the legal requirements and the circumstance of every case with the position held and the economic activity carried out by the company.
For that reason, it’s going to make a general statement of the legal typification of the income received by the working partner. The circumstances and legal considerations concurrent in each case should be carefully analyzed.
Article 27.1, third paragraph of Law 35/2006, of November 28, on Personal Income Tax and partial amendment of the Laws on Corporate Income Taxes, Income from Non-Residents and on Equity provides:
"However, in the case of income obtained by the taxpayer from an entity in whose capital it participates derived from the activities included in Section Two of the Tax Tariffs on Economic Activities, approved by Royal Legislative Decree 1175/1990, of September 28, will have this consideration when the taxpayer is included, for this purpose, in the special social security scheme of self-employed or self-employed workers, or in a social security mutual fund that acts as an alternative to the aforementioned special regime as provided for in the fifteenth additional provision of Law 30/1995, of November 8, on the management and supervision of private insurance."
Therefore, if the services provided to the company include professional activities (Telecommunication Technicians, Lawyers, Doctors, Veterinarians, Engineers, etc.) are included in the second section of the Taxes on Economic Activities, the rents obtained will be considered income from economic activities with the consequent obligation to comply with the legal and tax requirements derived therefrom.
In such a case, the partner is considered as a stranger in the tax law, althought is the administrator and owning the company (in the percentages in question). And he must fulfill all his individual tax obligations, in addition to which must be carried out by the company. It deprives the incentive to use this legal structure, beyond the limited liability that could be solved through other legal instruments.
On the other hand, if the services provided by the working partner in the company are not included in the second section of the tax on economic activities, the income received will be classified as labor income.
In these cases, the working partner will receive monthly income assimilated to a salary, even if he is quoted by the RETA, in the Social Security. Added to this are the advantages of being able to benefit from tax exemptions and limitations on salary payments, locomotion, tickets, non-cash income, etc.
IV. CONCLUSIONS
The beginning of an economic activity through an individual company or through any corporate figure, and especially through a capitalist company, requires an good legal-tax planning (in addition to legal and labor planning) in order to take care of the circumstances of the company with the fulfillment of the requirements legally required by the tax legislation.
The legal provision contained in the article.primero.Deciséis of Law 26/2014, of November 27, has clarified the legal typification of the remunerations of the working partners that essentially will be income from economic activities as contemplated in the second section of the rates of the Tax on Economic Activities, and labor income for those not provided for therein.
The remuneration derived from the managerial position must be reflected with due rigor in the bylaws. In general, it depends of the profits of the company, it should be done free or not, and each case should be analyzed.
Finally, some questions could be formulated on the usefulness of mercantile companies in Spain and the possible use of other fiscal and business planning options. There are other alternatives to the Spanish limited liability company, depending on the activity carried out by the company, the national or international scope of the company, whether it operates one or several partners, size of the company, etc. It’s to avoid fiscal costs, social security cost, excessive bureaucracies, legal security, etc.
Do you need to plan your business in the legal, fiscal and labor field? You can contact me in the following contact form.