Avoiding double taxation on dividends and capital gains

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1. When a company receives dividends from another Spanish company, it may deduct 50 % of the tax due on those dividends. The deduction rises to 100 % if it owns at least 5 % of the entity and has done so for the previous year.
2. The part of a capital gain that comes from undistributed profits may also be deducted when shares in Spanish companies are sold, if the 5 % and one-year holding requirements are met.
3. For income from foreign subsidiaries, a 100 % deduction is created for dividends and capital gains, provided requirements are met, such as the entity being in a country with a treaty with Spain that allows information exchange and carrying out business activity.
4. Income obtained through branches abroad may also benefit from a 100 % deduction, with similar requirements, and amounts not deducted due to insufficient tax may be applied in the following seven years.
5. Dividends and capital gains from foreign entities that meet the requirements may be left out of the taxable base altogether, meaning they are not taxed in Spain, under the regime for entities holding foreign shares.
6. Those who apply the asset value update under Royal Decree-Lawroyal decree-law A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses. 7/1996 must pay a single 3 % levy on the balance of the revaluation reserve, paid together with the corresponding tax return.

Who it affects

• Spanish companies receiving dividends from other Spanish companies: They may deduct part or all of the tax due on those dividends and on capital gains when selling shares.
• Companies with subsidiaries or branches abroad: They may apply the 100 % deduction or the exemption for this income if they meet the requirements, making it easier to compete abroad.
• Individuals updating balances under Royal Decree-Law 7/1996: They must pay the single 3 % levy with their 1996 income taxincome tax The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings. return.
• Companies distributing profits from income not taxed in Spain: They must report this income and the foreign taxes paid in their annual report and to their shareholders.

Words worth knowing

Doble imposición (double taxation)

When the same income is taxed twice, for example at the company that earns it and at the one receiving it as a dividend.

Dividendo (dividend)

The share of profits a company distributes to its shareholders.

Plusvalía (capital gain)

The profit made when selling something for more than it cost, such as shares.

Base imponible (taxable base)

The amount of money on which the tax is calculated.

Establecimiento permanente (permanent establishment)

A branch or office of the company in another country, without being a separate company.

royal decree-law

A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses.

decree-law

A rule with the force of law that the Government passes because it is urgent. It applies from its publication, but the Congreso must validate it within 30 days or it lapses.

income tax

The personal income tax (IRPF in Spain): what people pay on what they earn from work, business or savings.

It summarizes the law as published in the BOE. It is written by artificial intelligence and may contain mistakes: the official text is what counts. Read the official text · How we make summaries