Passing on the family business: lifetime gift or inheritance

On the first route, a gift between living persons is the act by which a person transfers, gratuitously and irrevocably, a part of his or her assets to another, who accepts it (Article 1386 of the Civil Code). As a general rule it requires court authorization, the insinuación: a gift that is not court-approved is valid only up to a minimum amount and void for the excess (Article 1401). The donee files and pays the tax, and the judge authorizes the gift only once payment is proven (Article 52 of Law 16.271). The tax is computed on the value of the gifted assets at that date, with an exemption of 5 UTA per beneficiary when the donee is a child, descendant, ascendant, spouse or civil partner (Article 2).

The inheritance is taxed when the allocation vests upon death. Each allocation to a child, descendant, ascendant, spouse or surviving civil partner is exempt up to 50 UTA (Article 2). The tax is paid within 2 years and, since Law 21.210, may be deferred in annual installments payable over three years, on request filed within that period and with indexation and interest (Article 50). If there are descendants, a spouse, a civil partner or ascendants, half of the estate is reserved by law for the forced heirs (legitimarios). One quarter remains available to favor a spouse, civil partner, descendant or ascendant, and only the remaining quarter is freely disposable (Article 1184 of the Civil Code and Article 16 of Law 20.830). With a forced heir, the only stipulation on a future succession the law allows is the pacto de no mejorar. In it, the founder promises by public deed to the spouse or to a descendant or ascendant forced heir not to gift or bequeath any part of the cuarta de mejoras (Article 1204). Outside that agreement, the right to succeed a living person cannot be the object of a gift or contract (Article 1463).

Unless otherwise indicated, the articles in the table are from Law 16.271; CC is the Civil Code.

• For one year from the first day of the second month after publication, lifetime gifts to children, spouse and other forced heirs, and to the beneficiaries of the cuarta de mejoras, will pay half the tax of Law 16.271, once per donor, by public deed and without court approval. If the donor has no such beneficiaries, the reduction will also reach other donees.
• The gift will be capped at half of the donor’s assets; if the donee sells within 3 years, part of the benefit is lost through the tax cost of the sale. The notary will not authorize the deed without the certificate of payment of the tax, which the donee will have the option to finance with regulated loans from the gifted companies themselves or from related companies. The full conditions are in the 50% reduction for gifts.
• The add-back of Article 23 of Law 16.271 will keep operating, with two adjustments. For the credit for the tax on earlier gifts and for the computation of future inheritances or gifts from the same donor, the full tax, without the reduction, will be deemed paid. And the first and final paragraphs of Article 23 will not apply to gifts made before publication.
• The SII will have three years from payment of the tax to audit the value of the gifted assets and the truthfulness of the returns, and the bill expressly preserves the general anti-avoidance rule (Articles 4 bis to 4 quinquies and 100 bis of the Tax Code).
• On the civil side, forced heirship does not change. The bill does alter two rules for gifts made under the reduction: it frees them from court approval and declares irrevocable the gift made to the spouse, which under Article 1138 of the Civil Code would be valid as revocable. Gifts made on account of legítimas or mejoras will continue to be notionally added back to compute the legítimas (Article 1185 of the Civil Code). The reduction makes it cheaper to anticipate the succession; the distribution remains subject to forced heirship.
• Outside the reduction, the general regime keeps its own limited relief: gifts by individuals out of funds that have already been taxed, up to 20% of the donor’s net global income and capped at 250 UTM per year, are exempt and freed from court approval, and those made to forced heirs under that rule are added back for 10 years (Article 18 number 8, added by Law 21.210). Its annual cap reserves it for periodic transfers of limited amounts.

In an SpA the bylaws allow series of shares without voting rights, with limited voting rights or with more than one vote per share (Article 437 of the Commercial Code). Shareholders have a preemptive right over new shares only if the bylaws establish it (Article 439). With those series, the founder gifts the economic value of the company and keeps the votes, or transfers the votes gradually. Each transfer must record the transferee’s declaration that he or she knows the rules governing the SpA, the bylaws and the protections that do or do not exist in them (Article 446). The criteria for choosing the vehicle are in SpA or Limitada?, and the clauses that order the relationship within the next generation (first offer, the right to join a sale or tag along, the obligation to sell together or drag along, deadlock and exit), in the shareholders agreement.

Alongside the bylaws, the valuation deserves the same care. Shares without a stock exchange quotation, such as those of a family SpA, are valued at their current market value (valor corriente en plaza). The same rule always applies to the shares of a sociedad anónima whose capital belongs in more than 30% to the deceased, the spouse, the heirs or the legatees, even if they are listed (Articles 46, letter b), and 46 bis of Law 16.271). It applies to the gift by the reference in Article 24. Since Law 21.210, the tax determined on that basis is assessed immediately by the SII on the sole basis of the return, and within the following 60 days the SII has the power to summon the taxpayer and assess differences (Article 50, first paragraph). The valuation fixes at once the tax, the cap of half the donor’s assets under the transitional reduction and the balance among heirs; it is the first figure to settle and document.

• Gifting in life is justified when the founder wants to choose the successors and the timing, the company can bear a valuation now and the family accepts an irrevocable transfer. If the transitional reduction enters into force, paying half the tax on a value documented today tends to cost less than paying it in full on the value of the company at the founder’s death. The comparison requires simulating both routes: the inheritance exemption (50 UTA) is ten times the gift exemption (5 UTA), and at low amounts the inheritance can end up paying less.
• If the founder still runs the company, gifting the economic rights, without the votes, is the alternative: a series without voting rights or with limited voting rights keeps the administration in the founder’s hands while the value passes to the next generation, provided the bylaws and the agreement also order the administration, the quorums and future issuances. The SII values those shares at their current market value, with no certainty that it will accept a discount for the lack of voting rights, and a separation of vote and value without a business reason is exposed to the general anti-avoidance rule.
• The inheritance remains the right route when the founder depends on the dividends, when the protection of the spouse must come before the children’s shares, or when the family has not agreed on who will run the company: an irrevocable gift in the middle of an unresolved conflict leaves that conflict installed in the ownership of the company.
• On either route, the will serves for what the law leaves to the founder: the cuarta de mejoras, among the spouse or civil partner, descendants and ascendants, and the freely disposable quarter (Article 1184 of the Civil Code and Article 16 of Law 20.830). With them the founder can reward the child who stays in the company or compensate those who do not. What is gifted to a forced heir is charged against his or her legítima, unless the deed, the will or a later authentic act states that it was made as a mejora (Article 1198).

If the bill is published, the transitional reduction will run for one year from the first day of the second month after publication in the Official Gazette, and as of September 25, 2026, the law is not yet published. The valuation, the bylaws, the shareholders agreement and the financing of the tax take months; the deed would have to be ready to sign on the first day of the reduction.