Exemption of foreign income
Article 22 of the LIS regulates the exemption of certain income obtained abroad through a permanent establishment.
A. Completion of Form 200
In application of the provisions of said article, the taxpayer must make the following adjustments in boxes  and  "Exemption of income abroad (art. 22 LIS)" on page 13 of form 200:
Article 22.1 of the LIS establishes the exemption of positive income obtained abroad through a permanent establishment located outside Spanish territory, as well as income derived from the transfer of a permanent establishment or the cessation of its activity, when the permanent establishment has been subject to and not exempt from a tax of an identical or analogous nature to this Tax with a nominal rate of at least 10 per cent, under the terms provided for in Article 21.1 of the aforementioned Law.
Consequently, when the entity obtains this exempt income by application of the provisions of article 22.1 of the LIS, it must include the amount thereof in the box  of decrease in accounting profit.
The article 22.2 of the LIS already established that negative income obtained abroad through a permanent establishment will not be included in the tax base, but for tax periods starting on or after 1 January 2017, it establishes that negative income derived from the transfer of the permanent establishment will not be included in the tax base either.
Therefore, on the basis of the provisions of this article, the entity must include in box  of increases, the amount corresponding to said negative income.
However, the last paragraph of Article 22.2 of the LIS stipulates that the tax deductible negative income generated in the event of termination of the permanent establishment will be tax deductible .In this case, the amount of the net loss will be reduced by the amount of the positive income acquired previously, and which was entitled to be subject to the application of an exemption or deduction system to prevent double taxation, for the amount thereof.
Accordingly, the entity should include this amount in box  of increases.
Explanatory notes on Articles 22.1 and 22.2 of the LIS:
Article 22.3 of the LIS establishes that an entity shall be deemed to operate through a permanent establishment abroad when, by whatever means, it has outside Spanish territory, on a continuous or habitual basis, facilities or workplaces in which it carries out all or part of its activity, or acts there through an agent authorised to contract in the name and on behalf of the taxpayer, who habitually exercises those powers.In particular, permanent establishments are understood to be those referred to in Article 13(1)(a) of the Non-Resident Income Tax Act.If the permanent establishment is located in a country with which Spain has entered a double taxation agreement, and said agreement is applicable, it will be subject to the result thereof.
Likewise, article 22.4 of the LIS establishes that a taxpayer is considered to operate through different permanent establishments in a given country, when they carry out clearly distinguishable activities and the management of these activities is carried out separately.
Finally, according to the provisions of article 22.5 of the LIS, the income of a permanent establishment shall be deemed to be the income that the permanent establishment could have obtained if it had been a distinct and independent entity, taking into account the functions performed, the assets used and the risks assumed by the entity through the permanent establishment.
For these purposes, it will be taken into account the estimated income due to internal operations with the institution itself in those cases in which, as well is established in an agreement to avoid double international taxation as applicable.
The article 22.6 of the LIS establishes that the regime provided for in that article shall not apply when the circumstances provided for in article 21.9 of the LIS apply to income obtained abroad.The option referred to in Article 21.9(c) of the LIS shall be exercised for each permanent establishment outside Spanish territory, even if there are several in the territory of a single country.
B. Transitional regime (DT 16ª.4 and 16ª.5 of the LIS)
In relation to the regime regulated in article 22.1 and 2 of the LIS, it is necessary to take into account the transitional regime provided for in section 4 of the sixteenth transitional provision of the LIS according to which, in the event that a permanent establishment has obtained net negative income which has been included in the taxable income of the entity in tax periods commencing prior to 1 January 2013, the exemption provided for in article 22 of the LIS or the deduction referred to in article 31 of this Law shall only apply to the positive income obtained thereafter from the moment it exceeds the amount of such negative income.
Likewise, paragraph 5 of the sixteenth transitional provision of the LIS establishes another transitional regime for cases of transfer of a permanent establishment in tax periods beginning on or after 1 January 2016, according to which the tax base of the transferring entity resident in Spanish territory will be increased by the amount of the excess of the net negative income generated by the permanent establishment in tax periods beginning prior to 1 January 2013 over the net positive income generated by the permanent establishment in tax periods beginning on or after that date, with the limit of the positive income derived from the transfer of the permanent establishment.
|Source of income||Tax periods|
prior to 1/1/2017
|Obtained by EP||Positive income||Exempt||Exempt|
|Negative income||They are NOT integrated in BI||NOT integrated in BI|
|PD transmission derivatives||Positive income||Exempt||Exempt|
|Negative income||YES are integrated in BI
If acquirer is a group entity,
there is a deferral regime
(art. 11.11 LIS)
|NOT integrated in BI
The deferral scheme for the deferral of
art. 11.11 LIS
|Derivatives of PE cessation||Positive income||Exempt
(although this is not expressly stated)
|Negative income||YES are integrated in BI||YES are integrated in BI|
Notes to the table:
Exempt income if PE subject to and not exempt from a tax analogous to corporate income tax with a nominal rate >10%.
Negative income included in BI is reduced in accordance with Art. 22.LIS.