Spain: 5% taxation on dividends and capital gains

The General State Budget of Spain that entered into force as of 1 January 2021 includes new relevant tax measures, especially with regard to Corporate Income Tax. Specifically, the General State Budget sets out that the exemption for dividends and capital gains arisen due to the transfer of shares obtained by a Spanish entity from national and foreign subsidiaries is now limited to 95% of the income. Therefore, 5% of such income is treated as non-deductible expenses. Considering that the standard CIT rate in Spain is 25%, the effective tax rate on dividends and capital gains is 1.25%. Furthermore, this measure is applicable even in a tax consolidation regime, as the 5% rate cannot be eliminated from the consolidated group’s taxable base.

Lastly, it is important to bear in mind that this measure is only related to Corporate Income Tax, but it is not foreseen in the Non-Resident Income Tax regulation. Consequently, it can be assumed that such limit does not apply when the dividends or capital gains are obtained by Non-Resident entities.

Read the WTS Global International Corporate Tax Newsletter here.