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Practical Handbook for Companies 2021

Exemption of income obtained in the cases of art. 21.3 LIS other than the assignment of securities of resident and non-resident entities in Spanish territory

The article 21.3 of the LIS establishes that positive income obtained in the event of liquidation of the entity, separation of the shareholder, merger, total or partial spin-off, reduction of capital, non-monetary contribution or global transfer of assets and liabilities, will be exempt when it is fulfilled:

  • The requirement provided for in letter a) of Article 21.1 of the LIS on the day on which the transfer takes place.

  • In addition, in cases of transfer of holdings in non-resident entities, the requirement set out in letter b) of article 21.1 of the LIS must be met in each and every one of the years in which the holding is held.

A. Partial exemption

This exemption can also be partially applied in the same way as we have indicated in the case of the exemption on income obtained on the transfer of securities of resident and non-resident entities in Spanish territory.

Special rules

In the following cases, the application of this exemption will occur in the following cases:

  1. When the shareholding in the entity has been valued in accordance with the rules of the special regime of Chapter VII of Title VII of this Law and the application of said rules has determined the non-inclusion of income in the taxable base of this Tax, or of Non-Resident Income Tax, derived from:

    • The contribution of a holding in an entity which does not meet the requirement of point (a) or, in whole or in part for at least one financial year, the requirement referred to in paragraph 1(b) of this Article.

    • The non-monetary contribution of other assets that differ from holdings in entities' own capital or funds.

    In this case, the exemption will not be applied on the transferor's deferred income as a result of the operation, unless proof is provided that the acquiring company has integrated this income in its gross tax base.

  2. When the shareholding in the entity has been valued in accordance with the rules of the special regime of Chapter VII of Title VII of the LIS and the application of these rules has determined the non-inclusion of income in the personal income tax base, derived from the contribution of shares in entities.

    In this case, when such holdings are subject to a transfer in the two years following the date on which the operation took place, the exemption will not be applied to the positive difference between the fiscal value of the shares received by the acquiring company and the market value at the time of the acquisition, unless proof is provided that the natural persons have transferred their holdings in the company during the aforementioned period.

B. Negative income

Negative income generated in the event of termination of the investee will be tax deductible, unless the termination is the result of a restructuring operation.

In this case, the amount of the negative income will be reduced by the amount of any dividends or shares in profits received from the investee entity in the ten years prior to the date of extinction, provided that the aforementioned dividends or shares in profits have not reduced the acquisition value and have had the right to the application of an exemption or deduction regime to avoid double taxation, for the amount thereof.

C. Reduction of the exemption for management fees

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 the positive income obtained in the other cases of article 21.3 of the LIS, other than the transfer of the holding in an entity, will be reduced, for the purposes of applying this exemption, by 5 per cent as management expenses relating to these holdings.

D. Completion of form 200

In relation to the exemption on income obtained in the cases of article 21.3 of the LIS other than the transfer of securities, the following adjustments must be made:

  1. Resident entities

    • With regard to the income obtained in the event of liquidation of the entity, separation of the shareholder, merger, total or partial spin-off, capital reduction, non-monetary contribution or global transfer of assets and liabilities of resident entities, the amount of the positive income obtained in these cases that is exempt because it meets the requirements of article 21.3 of the LIS should be included in the box [02187] "Exemption on income obtained in the cases of art. 21.3, 21.10 and DT 40ª LIS other than transfers of securities of resident entities" on page 13 of form 200, the amount of the positive income obtained in these cases that is exempt because it meets the requirements of article 21.3 of the LIS.

    • In the box [02186] "Exemption on income obtained in the cases of art. 21.3, 21.10 and DT 40ª LIS other than transfers of securities of resident entities" on page 13 of form 200, the amount of negative income obtained in the cases of article 21.3 of the LIS other than transfers of shares in resident entities that are not included in the tax base should be included.

    • With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of income obtained in the cases of article 21.3 of the LIS other than the transfer of securities, to which the exemption of article 21.3 of the LIS is applicable, will be reduced by 5 percent for management expenses, so that taxpayers applying the exemption should take this reduction into account when filling in boxes [02186] and [02187] on page 13 of form 200.
  2. Non-resident entities

    • With regard to the income obtained in the transfer of shares in non-resident entities, the amount of the positive income obtained in these cases that is exempt because it meets the requirements of article 21.3 of the LIS should be included in the box [02189] "Exemption on income obtained in the cases of art. 21.3, 21.10 and DT 40ª LIS other than transfers of securities of non-resident entities" on page 13 of form 200, the amount of the positive income obtained in these cases that is exempt because it meets the requirements of article 21.3 of the LIS.

    • In the box [02188] "Exemption on income obtained in the cases of art. 21.3, 21.10 and DT 40ª LIS other than transfers of securities of non-resident entities" on page 13 of form 200, the amount of negative income obtained in the cases of article 21.3 of the LIS other than transfers of shares in resident entities that are not included in the tax base should be included.

    • With effect for tax periods beginning on or after 1 January 2021, as established in article 21.10 of the LIS, the amount of income obtained in the cases of article 21.3 of the LIS other than the transfer of securities, to which the exemption of article 21.3 of the LIS is applicable, will be reduced by 5 percent for management expenses, so that taxpayers applying the exemption should take this reduction into account when filling in boxes [02188] and [02189] on page 13 of form 200.