The taxation regime in Spain was modified in 2015 and the rates of major taxes decreased by a few percentages for the benefit of the local and the foreign investors who are encouraged to do business in this country that was strongly affected by the financial crisis, but which, starting a few years ago, began the process of recovery.
However, the measures imposed by the Spanish government in the last years have already proven to be effective on various matters, including employment, which registered a record level in the first half of 2017. Our team of lawyers in Spain can provide in-depth information on the Spanish taxation regime applicable to foreign entities operating in this country.
The Spanish dividend tax
One of the most important taxes applicable to foreign investors is the dividend tax, which was imposed at rates between 21% and 27% in 2014 and which decreased in 2015, being applied at rates ranging between 20% and 24%. Our team of Spanish lawyers can offer in-depth assistance on the manner in which this tax is applied to local and foreign companies.
Starting with 2016, the Spanish authorities apply a dividend tax imposed at rates ranging between 19% and 23%, depending on the taxable amount. Sums of money below EUR 6,000 are imposed with a tax of 19%, while values above EUR 50,000 are taxed at a rate of 23%. The taxation of dividends is available for both natural persons and legal entities operating in Spain.
The taxation of dividends in Spain is applicable to both nonresident entities, regardless if they operate through a permanent establishment or not. In the case of those who do not have a permanent establishment in this country, the tax rate available is 19%, but lower tax rates can be applicable, provided that the foreign entity is a tax resident of a country with which Spain has signed a double tax agreement that stipulates a lower tax scheme.
Dividend tax for natural persons in Spain
Natural persons are also liable for dividend tax, which is imposed following the personal income tax scheme. Spanish tax residents will be taxed on a progressive scheme on the dividends they own, as follows: the first EUR 6,000 are to be taxed at a rate of 19%, the income from dividends above EUR 6,000 will be taxed at a rate of 21%, while any income above EUR 50,000 will be imposed with a tax of 23%.
Exemption removed in Spain, starting with 2015
Another important change of the Spanish tax system is the removal of the exemption on the first EUR 1,500 of dividends. The foreign entrepreneurs who obtain dividends in Spain, but not through a permanent establishment in this country, are required to pay the dividend tax applicable at the rate of 19% starting with 2016. They were entitled to a refund of the dividend tax for the first EUR 1,500 of their dividends, measure that was applied in the last years, according to Spanish Non-Resident Income Tax Law.
This refund was available for the dividends received from companies incorporated in Spain, but only for the dividends obtained at the level of 2014. Our team of Spanish lawyers can provide more details on the legislation referring to the taxation of dividends obtained by local and foreign businessmen.
The tax reform that came into force in January 2015 was proposed by the Spanish government in 2014, approved and then published in the Official Gazette in November 2014. The reform included the decrease of important taxes, such as dividend and corporate tax, and other major changes for the personal income tax of residents and non-residents, as well as for the value added tax (VAT).
Dividend exemption in Spain
Dividends that are received on the Spanish territory are generally imposed with the corporate income tax, but it is important to know that certain exemptions can be provided under specific legal conditions, which are presented below, but businessmen can receive in-depth legal assistance regarding this tax exemption from our team of lawyers in Spain.
Foreign companies operating in Spain can benefit from a tax exemption on dividends and capital gains if certain conditions are met. Foreign subsidiaries are entitled to this right if the parent company holds at least 5% of the subsidiary’s ownership for a period of minimum one year.
However, the regulation is applicable as long as the parent company owns at least EUR 20 million in the respective holding. It is also necessary for the foreign subsidiary to be imposed with a similar corporate income tax as the one applicable under the Spanish legislation.
The legislation on the matter requires that that the foreign subsidiary to be imposed with a corporate income tax applied at a rate of at least 10%, and this can be available as long as the respective company is a tax resident of a country with which Spain has signed a double tax treaty. Also, it is important to know that foreign companies can benefit from an exemption on the payment of the dividend tax in the case of Entities Holding Foreign Security (ETVE), as follows:
- • ETVEs are commonly known in Spain as holding companies, which benefit from a special tax law;
- • this type of entity has a special tax regime concerning the payment of dividends and capital gains;
- • the ETVE can benefit from an exemption on these types of income obtained from stocks and shareholding rights held in foreign companies;
- • when the ETVE company distributes dividends to a nonresident investor, the withholding tax on the above mentioned types of taxable income will not be applied, but it is necessary for the foreign company to be a tax resident in a country that does not have the status of a tax haven jurisdiction.
Companies can benefit from the dividend tax exemption if they are tax residents in one of the countries with which Spain has signed a treaty for the avoidance of double taxation. Foreigners who want to find out more details on the taxation system applicable to legal entities and natural persons are invited to contact our law firm in Spain.