Income from movable capital (dividends, interest, royalties)

Internal regulations

Regulations: Article 13.1.f) Law IRNR

According to internal regulations, the following income is deemed to be obtained in Spanish territory:

• Dividends and other income derived from participation in the equity of entities resident in Spain.

• Interest and other earnings obtained from the transfer to third parties of equity capital settled by persons or organisations resident in Spain or by permanent establishments located therein or which repay capital loans used in Spain.

• Fees ⁽¹⁾ paid by persons or entities resident in Spanish territory, or by permanent establishments located therein, or used in Spanish territory.

⁽¹⁾ Royalties are understood to be amounts paid for the use, or the granting of use, of rights over literary, artistic or scientific works, cinematographic films, patents, trademarks, drawings, plans, secret formulas or procedures, computer programs, information relating to industrial, commercial or scientific experiences, personal rights susceptible of transfer such as image rights, industrial, commercial or scientific equipment, and any other similar right.^(Back)

In relation to this type of income, the internal regulations contemplate multiple cases of exemption .

As an example, in the case of interests , the following are exempt :

(Normative: Article 14.1. letters c); d) and f) IRNR Law)

• Those obtained by residents in another Member State of the European Union or, with effect from January 1, 2021, in another Member State of the European Economic Area that is not a Member State of the European Union, provided that there is an effective exchange of information on tax matters (with effect from July 11, 2021, regulatory references made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance in matters of the exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax, which is applicable). See Annex V ) or by permanent establishments of such residents located in another Member State of the European Union or, with effect from 1 January 2021, in another Member State of the European Economic Area, provided that they are not obtained through a tax haven (with effect from 11 July 2021, references to tax havens are understood to be made to the definition of non-cooperative jurisdiction. See Annex IV )

• The returns derived from Public Debt.

• The returns on non-resident accounts.

As regards the dividends , they are exempt :

(Normative: Article 14.1. letters h); k) and l) IRNR Law)

• Those distributed by subsidiary companies resident in Spain to their parent companies ⁽²⁾ residents in another Member State of the EU( Annex V ) or to the EP of the latter located in other Member States, or to parent companies resident in the member States of the European Economic Area or to the EPs of the latter located in other member States as long as they have an effective exchange of information on tax matters (with effect from July 11, 2021, the references Regulations made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance regarding the exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax, which is applicable. See Annex V ), and provided that certain conditions are met. For the application of this exemption, it is required that the parent company does not have its residence, or the PE is not located, in a country or territory qualified as a tax haven (with effect from July 11, 2021, references made to tax havens are understood to be made to the definition of non-cooperative jurisdiction). See Annex IV ).

• Dividends and shares in profits obtained by pension funds equivalent to those regulated in the Pension Plans and Funds Law, resident in another Member State of the European Union or by permanent establishments of said institutions located in another Member State of the EU or residents in the member States of the European Economic Area with which there is an effective exchange of tax information (with effect from July 11, 2021, regulatory references made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance regarding the exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax, which is applicable. See Annex V ).

• Dividends and profit shares obtained by collective investment institutions regulated by Directive 2009/65/EC, the European Parliament and of the Council; or residents in the member states of the European Economic Area with which there is an effective exchange of tax information (with effect from July 11, 2021, regulatory references made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance in matters of exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax Law, which is applicable). See Annex V ); It is a partial exemption, since the taxation cannot be lower than that resulting from the application of the tax rate at which collective investment institutions domiciled in Spanish territory pay taxes.

As for royalties , they will be exempt and in the particular case of royalties between associated companies, paid to a company resident in a Member State of the EU or to a permanent establishment of such a company located in another EU Member State, provided that certain requirements are met ( Regulations: Article 14.1. m) IRNR Law ).

Agreement

Where an Agreement is applicable in relation to dividends, interest and royalties, it will be necessary to consult it specifically. In general, the shared taxation regime between Spain and the State where the taxpayer resides is followed; In this case, Spain would have the right to tax these income, but with a tax limit indicated in the respective Convention ( Annex III ).

Taxation

Regulations: Articles 24, 25 and 26 of the IRNR Law

Income obtained without the mediation of a PE must be taxed separately for each total or partial accrual of the income subject to tax.

As a general rule, the taxable base will consist of the full amount, that is, without deducting any expenses.

However, in the case of taxpayers resident in another Member State of the European Union or in a State of the European Economic Area in which there is an effective exchange of information (with effect from July 11, 2021, regulatory references made to States with which there is an effective exchange of tax information are understood to be made to States with which there are regulations on mutual assistance in matters of exchange of tax information in the terms provided for in Law 58/2003, of December 17, General Tax Law, which is applicable. See Annex V ), the following expenses may be deducted to determine the tax base:

1. In the case of individuals, the expenses provided for in the Personal Income Tax Law, provided that the taxpayer proves that they are directly related to the income obtained in Spain and that they have a direct and inseparable economic link with the activity carried out in Spain.

2. In the case of entities, deductible expenses in accordance with the provisions of the Corporate Tax Law, provided that the taxpayer proves that they are directly related to the income obtained in Spain and that they have a direct and inseparable economic link with the activity carried out in Spain.

The tax rate applicable to dividends and interest is 19%.

The type of tax applicable to the fees is the general one in force:

• Residents EU, Iceland, Norway and, since 07-11-2021, Liechtenstein: 19%
• Other taxpayers 24%

Deductions: Only the following may be deducted from the tax rate:

• Deductions for donations, under the terms provided for in the Income Law and in the Law on the tax regime of non-profit entities and tax incentives for patronage.

• The withholdings that have been made on income.

Reduction by agreement: If an agreement is applicable that sets a tax limit for dividends, interest or royalties, the taxpayer may take this limit into account by applying a reduction in the rate.