When a Spanish limited company owns 100 per cent of another Spanish company, there are two transactions that are particularly relevant from a tax perspective: the distribution of dividends and the sale of the subsidiary.
Both transactions are governed by Article 21 of the Spanish Corporation Tax Act and may qualify for significant tax exemptions if certain conditions are met.
Therefore, before distributing profits or considering the sale of a subsidiary in Spain, it is advisable to review the transaction carefully.
At Welex, a law and accountancy firm in Marbella, we advise national and international companies on corporate taxation, company law, accounting and corporate transactions in Spain.
In this article, we analyse how dividends received by a Spanish parent company and capital gains arising from the sale of a subsidiary will be taxed in Spain in 2026.
How are dividends taxed in Spain between a parent company and its subsidiary?
If a Spanish SL owns 100 per cent of another Spanish SL, it far exceeds the minimum 5 per cent shareholding requirement laid down by the regulations.
Furthermore, as a general rule, the shareholding must have been held for at least one year. In the case of dividends, if this period has not yet been met, it may be fulfilled subsequently by continuing to hold the shares.
When these requirements are met, the taxation of dividends in Spain allows, as a general rule, for a 95 per cent exemption to be applied.
This means that only 5 per cent of the dividend is included in the parent company’s taxable income.
Example:
If the subsidiary distributes €100,000 in dividends in Spain:
– €95,000 would be exempt.
– €5,000 would be included in the tax base.
If the parent company is taxed at 25 per cent, the tax liability would be €1,250, representing an effective tax rate of approximately 1.25 per cent of the dividend.
However, this percentage may vary depending on the corporation tax rate applicable to the company.
The correct taxation of dividends in Spain must be analysed on a case-by-case basis, particularly where there are different companies or business structures involved. In such cases, consulting tax advisers can help avoid errors in applying the exemption.
Can dividends in Spain be 100 per cent tax-exempt?
In certain cases, yes.
The regulations provide for an exception for certain newly established subsidiaries, allowing the dividend to be fully exempt.
Among other requirements, the parent company must have a turnover of less than 40 million euros, must not be a holding company, must not have previously formed part of certain corporate groups, and must not have held shareholdings of 5 per cent or more in other entities.
Furthermore, the subsidiary must have been incorporated after 1 January 2021 and the parent company must have directly held 100 per cent of its share capital from the moment of incorporation.
This full exemption can only be applied during the period established by the Act.
Therefore, having a turnover of less than 40 million euros does not automatically entitle a company to a 100 per cent exemption. All the requirements must be met.
Before applying this benefit in relation to the taxation of dividends in Spain, it is advisable to seek a review of the corporate structure by lawyers and accountants specialising in corporate taxation in Spain.
Is there a withholding tax on dividends in Spain?
Where the requirements set out in Article 21 of the Corporate Income Tax Law (LIS) are correctly met and substantiated, dividends may be paid without any withholding tax being applied.
The Spanish parent company must notify the subsidiary that it meets the necessary conditions and provide the relevant documentation.
Therefore, as well as correctly calculating the taxation of dividends in Spain, it is important to comply with the formal obligations of the transaction.
What happens if the parent company sells 100 per cent of the subsidiary?
The sale of a subsidiary in Spain is treated differently from the distribution of dividends in Spain.
In this case, the parent company realises a capital gain equal to the difference between the transfer value and the tax value of the shares, taking into account any applicable tax adjustments and expenses.
Put simply:
- Sale price − tax value of the shares ± tax adjustments
Where the parent company owns 100 per cent of the subsidiary and has held the shares for the required period, the capital gain is generally eligible for a 95 per cent exemption.
Example of a sale:
If the sale of a subsidiary in Spain generates a capital gain for tax purposes of €1,000,000:
– €950,000 would be exempt.
– €50,000 would be included in the taxable base.
If the parent company is taxed at 25 per cent, the tax liability would be approximately €12,500, equivalent to 1.25 per cent of the capital gain.
It is important to remember that the exception allowing certain dividends to benefit from a 100 per cent exemption does not apply to the sale of a subsidiary.
Therefore, when selling a subsidiary in Spain, the general rule remains a 95 per cent exemption, provided that all the requirements are met.
Points to consider before selling shares in a Spanish company
The tax treatment of a business sale and purchase transaction can vary significantly depending on the circumstances of each company.
Before selling a subsidiary in Spain, it is particularly important to review:
- The period for which the shares have been held.
- The tax base of the acquisition.
- Whether the subsidiary may be regarded as a holding company.
- Whether there have been any previous restructurings, contributions or exchanges.
- The costs associated with the transaction.
- The corporation tax rate applicable to the parent company.
These factors can significantly affect the tax outcome.
Therefore, effective corporate tax planning in Spain requires an analysis of the transaction before the sale is finalised. Coordination between lawyers and accountants enables a joint assessment of the legal, tax and accounting implications.
Is there a withholding tax when shares in a subsidiary company in Spain are sold?
In an ordinary sale of shares in a Spanish limited liability company (SL) between resident companies, the purchaser does not, as a general rule, withhold tax on the sale price.
The parent company must declare the corresponding capital gain in its corporation tax return.
However, given the specific circumstances that may arise in each transaction, the sale of a subsidiary in Spain should be analysed in advance as part of an appropriate corporate tax strategy in Spain.
Dividends or sale of the subsidiary: key differences
In general terms:
Dividends: if the requirements are met, 95 per cent is exempt. In certain specific cases involving newly established subsidiaries, a 100 per cent exemption may be available.
Sale of the subsidiary: if the requirements are met, the capital gain generally benefits from a 95 per cent exemption. The 100 per cent exemption provided for certain dividends does not apply.
Whether regarding the taxation of dividends in Spain or the sale of a subsidiary in Spain, compliance with the requirements of Article 21 of the Corporate Income Tax Law (LIS) is essential.
Therefore, advance planning with tax advisers in Marbella, accountants in Marbella, and lawyers and economists in Marbella can help avoid tax complications and ensure the transaction is structured correctly.
Tax and corporate advice in Marbella
Corporate taxation in Spain can vary considerably depending on the corporate structure and the specific characteristics of each transaction.
If you require advice on the taxation of dividends in Spain, the sale and purchase of shareholdings, corporate restructuring or the sale of a subsidiary in Spain, please contact Welex, a firm of solicitors and economists in Marbella.
Welex’s team of tax advisers, accountants, solicitors and economists in Marbella can analyse your situation and provide legal, tax, financial and accounting advice tailored to your company’s needs.
Contact Welex for professional advice on corporate taxation in Spain and corporate transactions.
This blog has been written by Sara Duarte, head of the accounting department at the Welex law firm on the Costa del Sol. Welex is your tax adviser in Spain, specialising in business and company law.
