Exemption of dividends or holdings in the profits of resident and non-resident entities in Spanish territory

article 21.1 of the LIS establishes that or participation in the profits of entities will be exempt, when the following requirements are met:
1. That the percentage of participation , direct or indirect, in the capital or own funds of the entity is at least 5 percent. In the fortieth transitional provision of the LIS, a transitional regime is added to apply for a period of 5 years to the shares acquired in the tax periods that began prior to January 1, 2021 , which had an acquisition value of more than 20 million euros, without reaching the aforementioned percentage of 5 percent hundred.
  - This participation must be held uninterruptedly during the year prior to the day on which the benefit to be distributed becomes payable or, failing that, it must be held thereafter for the time necessary to complete said period. To calculate the term, the period in which the participation has been held uninterruptedly by other entities that meet the circumstances referred to in article 42 of the Commercial Code to form part of the same group of companies is also taken into account, regardless of residence and the obligation to prepare consolidated annual accounts.
  - In the event that the investee entity obtains dividends, participation in profits or income derived from the transfer of securities representing the capital or own funds of entities in more than 70 percent of its income, the application of this exemption with respect to said income will require that the taxpayer have an indirect participation in those entities that meets the requirements indicated in article 21.1.a) of the LIS. The aforementioned percentage of income is calculated on the consolidated result of the fiscal year, when the directly controlled company is the parent company of a group, according to the criteria established in article 42 of the Code of Commerce, and draws up consolidated annual accounts. Nevertheless, an indirect stake in second and subsequent-level subsidiaries must respect the minimum percentage of 5%, unless said subsidiaries fulfil the circumstances referred to in article 42 of the Code of Commerce to form part of the same group of companies as the directly controlled company, and draw up consolidated accounting statements.
    
    The requirement of the previous paragraph is not applicable when the taxpayer proves that the dividends or shares in profits received have been integrated into the gross tax base of the directly or indirectly controlled company as dividends, shares in profits or income derived from the transfer of securities that represent the entities' own capital or funds, without having the right to apply an exemption or deduction system due to double taxation.
2. Additionally, in the case of participations in the capital or equity of entities not resident in Spanish territory , that the investee entity has been subject to and not exempt from a foreign tax of an identical nature. or analogous to this Tax at a nominal rate of at least 10 percent in the year in which the profits that are distributed or in which participation is obtained, regardless of the application of any type of exemption, bonus , reduction or deduction on those.
  - For these purposes, those foreign taxes that have had the purpose of imposing the income obtained by the investee entity will be taken into account, regardless of whether the object of the tax is the income, income or any other indicative element of the entity.
  - This requirement will be deemed to be met when the subsidiary is registered in a country with which Spain has an agreement to avoid double international taxation, which is applicable and contains a data exchange clause.
  - In no case will this requirement be deemed to have been met when the investee entity is resident in a country or territory classified as a non-cooperative jurisdiction, unless it resides in a Member State of the European Union and the taxpayer proves that its constitution and operations respond to valid economic reasons. and that carries out economic activities.
    
    In the event that the non-resident company obtains dividends, shares in profits or income derived from the transfer of securities that represent the entities' own capital or funds, the application of this exemption with respect to said income will entail that the requirements in this point are fulfilled by, at least, the controlled company.
  In the event that the investee entity, resident or non-resident in Spanish territory, obtains dividends, shares in profits or income derived from the transfer of securities representing the capital or own funds of entities coming from two or more entities with respect to the that only in one or some of them the requirements indicated in letters a) or a) and b) above are met, the application of the exemption will refer to that part of the dividends or shares in profits received by the taxpayer with respect to entities in which that the aforementioned requirements are met.
Note:

The exemption provided for in this section 1 will not apply to the amount of those dividends or shares in profits whose distribution generates a tax-deductible expense in the paying entity.

For the application of the provisions of this section, in the case of distribution of reserves, the designation contained in the social agreement will be followed and, failing that, the last amounts paid to said reserves will be considered applied.
According to the provisions of article 21.2 of the LIS :
1. Dividends or participation in profits will be considered those derived from securities representing the capital or own funds of entities, regardless of their accounting consideration.
2. The remuneration corresponding to participatory loans granted by entities that are part of the same group of companies will be considered dividends or participations in exempt profits according to the criteria established in article 42 of the Commercial Code, regardless of residence and the obligation to prepare consolidated annual accounts, unless they generate a tax-deductible expense in the paying entity.
3. The exemption provided for in article 21.1 of the LIS will not apply in relation to dividends or shares in profits received whose amount must be delivered to another entity on the occasion of a contract that relates to the securities from which they come. recording an expense for this purpose.
  
  The entity receiving said amount under the aforementioned contract may apply the exemption provided for in article 21.1 of the LIS provided that the following requirements are met:
  - That it preserves the accounting record of said values.
  - Proof that the dividend has been received by the other contracting entity or an entity belonging to the same group of companies of either of the two entities, in the terms established in article 42 of the Commercial Code.
  - That the conditions established in article 21.1 of the LIS for the application of the exemption are met.
The seventeenth transitional provision of the LIS establishes that the provisions of article 21.2 of the LIS , are not applicable to the remuneration corresponding to participatory loans granted prior to June 20, 2014 .
According to the provisions of article 21.10 of the LIS, with effects for tax periods beginning on or after January 1, 2021, the amount of dividends or participation in profits of entities to which the exemption provided for in article 21 of the LIS applies, will be reduced , for the purposes of the application of said exemption, by 5 percent for management expenses related to said shares.
However, article 21.11 of the LIS establishes that this 5 percent reduction will not be applicable when said dividends or shares in profits :
1. They are received by an entity whose net amount of turnover in the immediately preceding tax period is less than 40 million euros that meets the following requirements:
  - Not be considered a property entity in the terms established in article 5.2 of the LIS.
  - Not be part, prior to the constitution of the entity referred to in letter b) of this section, of a group of companies within the meaning of article 42 of the Commercial Code, regardless of residence and obligation to prepare consolidated annual accounts.
  - Not having, prior to the constitution of the entity referred to in letter b) of this section, a percentage of participation, direct or indirect, in the capital or own funds of another entity equal to or greater than 5 percent. hundred.
  The net amount of the turnover will be determined according to the rules established in article 101.2 of the LIS for small entities.
2. They come from an entity incorporated after January 1, 2021 in which the entire capital or own funds are held directly and since its incorporation.
3. They are collected in the tax periods that end in the 3 years immediately following and to the year of incorporation of the entity that distributes them.

Filling in form 200

- Resident entities
  
  In application of the provisions of articles 21.1 and 21.2 of the LIS , taxpayers who receive dividends or participation in profits from entities resident in Spanish territory must include in box [00370] «Exemption on dividends or participation in profits of resident entities (art. 21.1, 21.10 and DT 40 LIS)» on page 13 of form 200, the amounts corresponding to the decreases in the accounting result that arise from the application of the exemption on the receipt of dividends or participation in profits of entities resident in Spanish territory, provided that the requirements of article 21.1 of the LIS are met.
  
  With effect for tax periods beginning on or after January 1, 2021, as established in article 21.10 of the LIS , the The amount of dividends or participation in profits of entities, to which the exemption of article 21.1 of the LIS applies, will be reduced by 5 percent as management expenses referred to to these participations, so taxpayers who apply the exemption of article 21.1 of the LIS, must take said reduction into account when completing box [00370] «Exemption on dividends or participations in benefits of resident entities (art. 21.1, 21.10 and DT 40 LIS)» on page 13 of model 200.
  
  However, taxpayers who, according to the provisions of article 21.11 of the LIS , do not have to apply the 5 percent reduction as a of management expenses , must include in box [01764] «Exemption on dividends or participation in profits of resident entities (art. 21.11 LIS) » on page 13 of form 200, the corresponding amounts that come from the application of the exemption of article 21.1 of the LIS, without taking said reduction into account.
- Non-resident entities
  
  In the event that taxpayers receive dividends or participations in profits from entities not resident in Spanish territory, they must include in box [02181] «Exemption on dividends or participations in profits from non-resident entities. residents (art. 21.1, 21.10 and DT 40 LIS)» on page 13 of model 200, the amounts corresponding to the decreases in the accounting result that arise from the application of the exemption on the receipt of dividends or shares in the profits of entities not resident in Spanish territory, provided that the requirements of article 21.1 of the LIS are met.
  
  With effect for tax periods beginning on or after January 1, 2021, as established in article 21.10 of the LIS , the The amount of dividends or participation in profits of entities, to which the exemption of article 21.1 of the LIS applies, will be reduced by 5 percent as management expenses referred to said participations, so taxpayers who apply the exemption of article 21.1 of the LIS must take said reduction into account when completing box [02181] "Exemption on dividends or participation in profits of non-resident entities (art. 21.1, 21.10 and DT 40 LIS)" on page 13 of model 200.
  
  However, taxpayers who, according to the provisions of article 21.11 of the LIS , do not have to apply the 5 percent reduction as of management expenses, must include in box box [01765] “Exemption on dividends or participation in profits of non-resident entities (art. 21.11 LIS)” on page 13 of form 200, the corresponding amounts that come from the application of the exemption of article 21.1 of the LIS, without taking said reduction into account.