Skip to main content
Practical Handbook for Companies 2021

International economic double taxation:dividends and shares in profits

Article 32 of the LIS regulates this deduction for international double taxation in order to avoid the international double taxation that arises in cases where a parent company resident in Spanish territory receives dividends or shares in the profits of its subsidiaries resident abroad, and the profit obtained has been taxed in the territory of the subsidiary and is subsequently taxed in the territory of the parent company when it is received.

For these purposes, article 32 of the LIS establishes that this deduction will be applied when dividends or shares in profits paid by a non-resident entity in Spanish territory are included in the tax base.

The amount of this deduction will be the tax actually paid by the non-resident entity in Spanish territory in respect of the profits out of which the dividends are paid, in the corresponding amount of such dividends, provided that such amount is included in the taxable base of the taxpayer.

For this deduction to apply, the following requirements must be met :

  1. The direct or indirect holding in the capital of the non-resident entity is at least 5 per cent, or the acquisition value of the holding exceeds 20 million (the latter requirement is only applicable for a period of 5 years for holdings acquired in tax periods starting before 1 January 2021).

  2. The shareholding must have been held uninterruptedly during the year preceding the day on which the profit to be distributed becomes payable or, failing this, must have been held for as long as is necessary to complete one year.To calculate the time period, you also need to take into account the period in which the holding has been uninterruptedly maintained by other entities that fulfil the circumstances referred to in article 42 of the Code of Commerce to form part of the same group of companies, regardless of the place of residence and the obligation to draw up consolidated annual accounts.

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

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

This deduction shall not be applied in respect of dividends or profit participations received, the amount of which is to be delivered to another entity in connection with a contract relating to the securities from which they arise, by recording an expense for this purpose.The entity receiving such an amount may make such a deduction to the extent that it retains the accounting record of such securities and the securities meet the conditions for such deduction.

With effect for tax periods commencing until 31 December 2016, negative income obtained on the transfer of a holding in an entity that had previously been transferred by another entity that meets the circumstances referred to in Article 42 of the Commercial Code to form part of the same group of companies with the taxpayer, regardless of residence and the obligation to prepare consolidated annual accounts, shall be reduced by the amount of the positive income obtained in the previous transfer and to which an exemption scheme had been applied.