When a directly owned enterprise has the status of holding company according to the exemption scheme to avoid double taxation, the income from which dividends in Spain are distributed must meet the “minimum tax” requirement.
Exemption – dividends in Spain
Article 21 of the Company Tax Law stipulates an exemption to dividends in Spain if the companies comply with certain requirements:
- if the percentage of direct or indirect share in the capital or own funds of the entity is at least 5%
- or the acquisition value of the share is more than 20 million euros.
- The corresponding share must be held uninterruptedly for one year prior to the date on which the dividend is distributed or, otherwise, must be held afterwards for as long as necessary to complete this term.
If the investee obtains dividends in Spain, profit shares or income derived from the transfer of shares representing the capital or own funds of companies, which amount more than 70% of its income, the application of this exemption on this income will require the contributor to have an indirect share in these entities that meets the above-mentioned requirements.
There is an additional requirement for the case of shares in entities not domiciled in Spain:
- the investee must be subject to and non-exempt from a foreign tax that is identical or similar in nature to this Tax at a nominal rate of, at least, 10% in the financial year in which the distributed profits were obtained or in which it participates, regardless of any kind of exemption, bonus, reduction or deduction applied thereto. In other words, when the direct investee has the status of holding company according to the exemption scheme to avoid double taxation, the income from which dividends are shared out must comply with the minimum taxation requirement.
- When the investee is domiciled in a country with which Spain has signed a convention to prevent international double taxation in which there is an exchange of information clause, this requirement shall be considered as fulfilled.
- Under no circumstances shall this requirement be considered as fulfilled when the investee is domiciled in a country with the status of tax haven.
- The exemption shall not be applied to the sum of dividends or profit shares that upon distribution generate a tax-deductible expense on the paying institution.
Summary – dividends in Spain
The Corporate Income Tax Law establishes a series of exemptions to prevent companies or entities subject to Tax in Spain from paying tax twice on the same income (for example, the dividends in Spain) if they have already done so abroad.