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Practical Handbook for Companies 2021

Exemption on dividends and income from the transfer of securities representing the equity of entities

Article 65 of Law 11/2020, of 30 December, on the General State Budget for 2021, with effect for tax periods beginning on or after 1 January 2021 that have not ended on the entry into force of this law (01-01-2021) and valid indefinitely, introduces the following amendments to the LIS:

  1. Paragraph Two amends the first paragraph of letter a) of Article 21.1 of the LIS and letter a) of Article 21.6 of the LIS, to establish that dividends or shares in the profits of entities will be exempt when the requirement is met that the percentage of direct or indirect participation in the capital or equity of the entity is at least 5 percent, eliminating the alternative requirement that the acquisition value of the participation be greater than 20 million euros.

  2. In relation to the above, section Six adds to the LIS the fortieth transitional provision to regulate a transitional regime to be applied for a period of 5 years to holdings acquired in tax periods commencing prior to 1 January 2021, which have an acquisition value of more than 20 million euros, without reaching the 5 percent percentage established in article 21.1 a) of the LIS.

  3. On the other hand, section Two adds to article 21 of the LIS section 10 which establishes that the amount of the dividends or shares in profits of entities and the amount of the positive income obtained in the transfer of the holding in an entity and in the other cases referred to in article 21.3 of said Law, to which the exemption provided in the same is applicable, shall be reduced, for the purposes of applying said exemption, by 5 per cent for management expenses referring to said holdings, and section 11 which indicates that the reduction of 5 per cent applicable to dividends or shares in profits of entities referred to in said section 10, shall not be applied when the following circumstances apply:

    1. The dividends or shares in profits are received by an entity whose net turnover in the immediately preceding tax period is less than 40 million euros, provided that the entity complies with the requirements established in letter a) of article 21.11 of the LIS.

    2. Dividends or shares in profits derive from an entity incorporated after 1 January 2021 in which all the capital or equity is held directly and since its incorporation.

    3. Dividends or shares in profits are received in tax periods ending in the 3 years immediately following the year of incorporation of the distributing entity.

  4. Finally, section Four adds a paragraph at the end of article 64 of the LIS which establishes that shall not be subject to elimination of the amounts that must be included in the individual tax bases by application of the provisions of article 21.10 of the LIS.