The dividend is the part of the profit of a company that is distributed among the shareholders of an entity. The dividend is the main way of remunerating shareholders as owners of a company. Its amount must be approved by the company’s General Shareholders’ Meeting, at the proposal of the Board of Directors.
It is important that the company establishes a dividend distribution policy, which includes:
- on the one hand, the profits that accumulate in the company in the form of reserves, in order to be able to assume possible expansions of the business or future results of losses
- and, additionally, the part that is distributed to the holders of the share capital in the form of dividends.
How is the distribution or distribution of dividends and withholdings regulated?
If your company has decided to pay dividends to its partners, you must make a 19% withholding on said dividend, considering the following:
- If the partner who receives it is a natural person, the withholding is applied, regardless of their participation percentage. And if it is a natural person not resident in Spain, you must withhold the rate established by the agreement to avoid double taxation with your country (in the absence of an agreement, the withholding rate is 19%)
- If the partner is a company resident in Spain or in the EU, nothing should be withheld. Provided that said partner is entitled to the exemption for double taxation of dividends. If this is not the case, 19% or the rate established in the agreement for non-resident companies will be withheld.
Double taxation exemption
The double taxation exemption applies if the partner has a direct or indirect participation of at least 5% and if, in addition, he has maintained said percentage uninterruptedly during the year prior to the date on which the dividend is due. If not, participation will be maintained until completed.
However, from January 1, 2021, the exemption for double taxation of dividends is only applicable with respect to 95% of the gross dividend received.
The withholding payment must be included in the tax form corresponding to the day on which the dividend is payable. And if the shareholders’ meeting does not say anything about it, it is understood that the dividend is payable from the day following the agreement by the distribution board.