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Practical Manual of Companies 2021.

Exemption on dividends and income derived from the transfer of securities representing the own funds of entities

Article 65 of Law 11/2020, of December 30, on the General State Budgets for the year 2021, with effects for tax periods that begin on January 1, 2021 that have not concluded upon entry into validity of this law (01-01-2021) and indefinite validity, introduces the following modifications in the LIS :

  1. Section Two modifies 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 participations in profits of entities will be exempt, when the requirement of that the percentage of participation, direct or indirect, in the capital or own funds 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 apply for a period of 5 years to the shares acquired in the tax periods beginning with prior to January 1, 2021, that had 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 section 10 to article 21 of the LIS, which establishes that the amount of dividends or participation in the profits of entities and the amount of positive income obtained in the transfer of the participation in an entity and in the rest of the cases referred to in article 21.3 of said Law, to which the exemption provided for in the same is applicable, is reduced , for the purposes of the application of said exemption, in a 5 percent in management expenses referring to said participations, and section 11 which indicates that the reduction of 5 percent applicable to dividends or participation in profits of entities referred to in section 10, will not apply when the following circumstances occur:

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

    2. Dividends or participation in profits come from an entity incorporated after January 1, 2021 in which it holds, directly and since its incorporation, all of the capital or own funds.

    3. Dividends or shares in profits are received in the tax periods that end in the 3 years immediately following the year of incorporation of the entity that distributes them.

  4. Finally, in section Four, a paragraph is added to the end of article 64 of the LIS that establishes that the amounts that must be integrated into the individual tax bases will not be subject to elimination due to the application of I establish it in article 21.10 of the LIS.