In the complex tax framework of corporate income tax, it is crucial to understand the exemptions available in order to optimise the taxation of companies. One of these relevant exemptions is that applicable to dividends and capital gains received on the sale of shareholdings, both domestic and non-resident. However, it is important to be aware of recent changes to this exemption, as well as the requirements that must be met in order to benefit from it.
95% Exemption on Dividends and Capital Gains: What does it mean?
- The direct or indirect shareholding in the capital or equity of the entity must be at least 5 per cent or the acquisition value of the shareholding must be more than 20 million euros.
The relevant holding must be held continuously during the year preceding the day on which the profit to be distributed becomes due or, failing that, must be held thereafter for the time necessary to complete that period.
- In addition, in the case of holdings in the capital or equity of entities not resident in Spanish territory, the investee must have been subject to and not exempt from a foreign tax of an identical or analogous nature to this Tax at a nominal rate of at least 10 per cent in the year in which the profits distributed or in which it participates were obtained, regardless of the application of any type of exemption, rebate, reduction or deduction on those profits.
This requirement will be deemed to be met when the investee is resident in a country with which Spain has signed an agreement to avoid international double taxation, which is applicable to it and which contains an exchange of information clause.
Impact on Effective Taxation:
Therefore, 5% of the dividends or capital gains received must now be taxed, this is calculated as 25% of the general rate of corporation tax, multiplied by the difference between 100% and 95% of the exemption. This means in practice an effective taxation for this income of 1.25% [25% general rate x (100% – 95%)].
Conclusions:
The 95% corporate income tax exemption on dividends and capital gains is a valuable tool for companies operating domestically and internationally. However, it is essential to understand the requirements and recent changes to this exemption in order to maximise its tax benefits. If you need help with your corporate tax return and the application of this exemption, do not hesitate to seek professional advice. With careful planning, you can optimise your company’s taxation and strengthen its financial position in an increasingly complex business environment.
