Skip to main content
Practical Handbook for Companies 2021

Exemption of dividends or holdings in the profits of resident and non-resident entities in Spanish territory

  1. The article 21.1 of the LIS establishes that exempts dividends or shares in the profits of entities, when the following requirements are met:

    1. That the percentage of direct or indirect participation in the capital or own funds of the entity is at least 5 per cent.The fortieth transitional provision of the LIS adds a transitional regime to be applied for a period of 5 years to holdings acquired in tax periods starting prior to 1 January 2021, which had an acquisition value of more than 20 million euros, without reaching the aforementioned percentage of 5 percent.

      • This holding must be held continuously during the year preceding the day on which the profit to be distributed becomes due or, failing that, must be held thereafter for the time necessary to complete that period.For the purpose of calculating the time limit, account is also taken of the period during which the holding has been held uninterruptedly by other entities that meet the circumstances referred to in Article 42 of the Commercial Code for forming part of the same group of companies, irrespective of residence and of the obligation to prepare consolidated annual accounts.

      • In the event that the investee obtains dividends, shares in profits or income deriving from the transfer of securities representing the capital or equity of entities representing more than 70 per cent of its income, the application of this exemption in respect of such income will require the taxpayer to have an indirect holding in those entities that meets the requirements set out in article 21.1.a) of the LIS.The aforementioned percentage of income is calculated on the consolidated result of the fiscal year, when the directly controlled company is the parent company of a group, according to the criteria established in article 42 of the Code of Commerce, and draws up consolidated annual accounts.Nevertheless, an indirect stake in second and subsequent-level subsidiaries must respect the minimum percentage of 5%, unless said subsidiaries fulfil the circumstances referred to in article 42 of the Code of Commerce to form part of the same group of companies as the directly controlled company, and draw up consolidated accounting statements.

        The requirement of the previous paragraph is not applicable when the taxpayer proves that the dividends or shares in profits received have been integrated into the gross tax base of the directly or indirectly controlled company as dividends, shares in profits or income derived from the transfer of securities that represent the entities' own capital or funds, without having the right to apply an exemption or deduction system due to double taxation.

    2. In addition, in the case of holdings in the capital or equity of entities not resident in Spanish territory, the investee must have been subject to and not exempt from a foreign tax of an identical or similar nature to this tax at a nominal rate of at least 10 per cent in the year in which the profits distributed or in which it holds an interest were obtained, regardless of the application of any type of exemption, rebate, reduction or deduction on those profits.

      • For these purposes, foreign taxes levied for the purpose of taxing the income obtained by the investee shall be taken into account, irrespective of whether the subject of the tax is the income, the revenue or any other element indicative of such income.

      • This requirement will be deemed to be met when the subsidiary is registered in a country with which Spain has an agreement to avoid double international taxation, which is applicable and contains a data exchange clause.

      • In no case shall this requirement be deemed to be met where the investee is resident in a country or territory classified as a non-cooperative jurisdiction, unless it is resident in a Member State of the European Union and the taxpayer proves that its incorporation and operation is for valid economic reasons and that it is engaged in economic activities.

        In the event that the non-resident company obtains dividends, shares in profits or income derived from the transfer of securities that represent the entities' own capital or funds, the application of this exemption with respect to said income will entail that the requirements in this point are fulfilled by, at least, the controlled company.

      In the event that the investee, whether resident or non-resident in Spanish territory, obtains dividends, shares in profits or income deriving from the transfer of securities representing the capital or equity of entities from two or more entities in respect of which only one or some of them meet the requirements set out in letters a) or a) and b) above, the application of the exemption will refer to that part of the dividends or shares in profits received by the taxpayer in respect of entities in which the aforementioned requirements are met.

    Important:

    The exemption provided for in this paragraph 1 shall not apply in respect of the amount of dividends or shares in profits the distribution of which generates a tax-deductible expense for the payer.

    For the application of the provisions of this section, in the case of distribution of reserves, the designation contained in the corporate resolution shall be taken into account and, failing this, the last amounts paid to such reserves shall be deemed to have been applied.

  2. According to the provisions of article 21.2 of the LIS:

    1. Dividends or shares in profits shall be deemed to be those derived from securities representing the capital or equity of entities, irrespective of their accounting treatment.

    2. The remuneration corresponding to participating loans granted by entities forming part of the same group of companies in accordance with the criteria established in article 42 of the Commercial Code, regardless of residence and the obligation to prepare consolidated annual accounts, will be considered exempt dividends or shares in profits, unless they generate a tax-deductible expense in the paying entity.

    3. The exemption provided for in Article 21.1 of the LIS shall not apply in relation to dividends or shares in profits received, the amount of which must be delivered to another entity on the occasion of a contract relating to the securities from which they derive, recording an expense for this purpose.

      The entity receiving this amount by virtue of the aforementioned contract may apply the exemption provided for in Article 21.1 of the LIS provided that the following requirements are met:

      • To keep the accounting records of these securities.

      • Proof that the dividend has been received by the other contracting entity or an entity belonging to the same group of companies of either entity, in the terms established in Article 42 of the Commercial Code.

      • The conditions established in article 21.1 of the LIS for the application of the exemption are met.

    The seventeenth transitional provision of the LIS, establishes that the provisions of article 21.2 of the LIS, is not applicable to remuneration corresponding to shareholder loans granted prior to 20 June 2014.

  3. According to the provisions of article 21.10 of the LIS, with effect for tax periods beginning on or after 1 January 2021, the amount of dividends or shares in the profits of entities to which the exemption provided for in article 21 of the LIS applies, will be reduced, for the purposes of applying this exemption, by 5 per cent as management expenses relating to such shares.

  4. However, article 21.11 of the LIS stipulates that this 5 per cent reduction does not apply, when such dividends or profit shares are paid out:

    1. Are received by an entity whose net turnover in the immediately preceding tax period is less than EUR 40 million that meets the following requirements:

      • Not being considered as an asset-holding entity under the terms established in article 5.2 of the LIS.

      • not, prior to the incorporation of the entity referred to in point (b) of this paragraph, form part of a group of companies within the meaning of Article 42 of the Commercial Code, irrespective of residence and irrespective of the obligation to draw up consolidated annual accounts.

      • Not having, prior to the incorporation of the entity referred to in point (b) of this paragraph, a direct or indirect holding in the capital or own funds of another entity equal to or greater than 5 per cent.

      The net turnover shall be determined in accordance with the rules established in article 101.2 of the LIS for small entities.

    2. They come from a entity incorporated after 1 January 2021 in which all the capital or own funds are held directly and since its incorporation.

    3. Are received in the tax periods ending in the 3 years immediately following the year of incorporation of the entity distributing them.

Filling in form 200

    • Resident entities

      In application of the provisions of articles 21.1 and 21.2 of the LIS, taxpayers who receive dividends or shares in profits of entities resident in Spanish territory must include in the box [00370] "Exemption on dividends or shares in profits of resident entities (art. 21.1, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amounts corresponding to the reductions in the accounting result corresponding to the application of the exemption on the receipt of dividends or shares in profits of entities resident in Spanish territory, provided that the requirements of article 21.1 of the LIS are met.

      With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of dividends or shares in profits of entities, to which the exemption of article 21.1 of the LIS applies, will be reduced by 5 per cent as management expenses referring to said shares, so taxpayers applying the exemption of article 21.1 of the LIS should take this reduction into account when filling in box [00370] "Exemption on dividends or shares in profits of resident entities (art. 21.1, 21.10 and DT 40ª LIS)" on page 12 of form 200.

      However, taxpayers who, in accordance with the provisions of article 21.11 of the LIS, do not have to apply the 5 per cent reduction for management expenses, should include in the box [01764] "Exemption on dividends or shares in profits of resident entities (art. 21.11 LIS)" on page 12 of form 200, the corresponding amounts resulting from the application of the exemption of article 21.1 of the LIS, without taking into account the said reduction.

    • Non-resident entities

      In the event that taxpayers receive dividends or shares in profits of entities not resident in Spanish territory, they must include in the box [02181] "Exemption on dividends or shares in profits of non-resident entities (art. 21.1, 21.10 and DT 40ª LIS)" on page 12 of form 200, the amounts corresponding to the reductions in accounting profit that are applicable due to the application of the exemption on the receipt of dividends or shares in profits of entities not resident in Spanish territory, provided that the requirements of article 21.1 of the LIS are met.

      With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of dividends or shares in profits of entities, to which the exemption of article 21.1 of the LIS applies, will be reduced by 5 per cent as management expenses referring to these shares, so that taxpayers applying the exemption of article 21.1 of the LIS should take this reduction into account when filling in box [02181] "Exemption on dividends or shares in profits of resident entities (art. 21.1, 21.10 and DT 40ª LIS)" on page 12 of form 200.

      However, taxpayers who, in accordance with the provisions of article 21.11 of the LIS, do not have to apply the 5 per cent reduction for management expenses, should include in the box [01765] "Exemption on dividends or shares in profits of resident entities (art. 21.11 LIS)" on page 12 of form 200, the corresponding amounts resulting from the application of the exemption of article 21.1 of the LIS, without taking into account the said reduction.