Special tax system for international tax transparency

This special tax regime regulated in Article 100 of the LIS establishes the imputation of income obtained by taxpayers who are shareholders or participants in non-resident companies under a series of circumstances, such as that these are more than 50 per cent owned by the shareholders and that they have a direct tax burden of less than 75 per cent of that which would correspond in Spain.

This imputation system will not apply when the non-resident entity in Spanish territory is resident in another Member State of the European Union, provided that the taxpayer proves that its incorporation and operations are based on valid economic motives and that it carries out economic activities or that it is a collective investment institution other than those provided for in Article 54 of this Law, incorporated and domiciled in a Member State of the European Union.

This escape clause from the application of the international tax transparency regime where the controlled entity is resident in another Member State will not apply to the United Kingdom from 1 January 2021.

Therefore, as of 1 January 2021, the international tax transparency regime will no longer apply and the income obtained by the entity domiciled in UK territory will be subject to the imputation regime at the seat of the Spanish shareholder.