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Spain: Participation exemption in ‘pure holding companies’


Gonzalo Gallardo

The Spanish Corporate Income Tax Law (CIT Law) contains a tax exemption for income obtained by Spanish entities from the transfer of ownership interests in companies – whether resident or non-resident – provided that:

  • A the time of the transfer, the ownership interest held, directly and indirectly, is 5% or more, or the value of the shareholding is over €20 million ($22.1 million) and it has been held for at least one year; and

  • In the case of non-resident companies, that they have been subject to a foreign tax similar to the Spanish tax at a rate of at least 10% (the CIT Law presumes this requirement is met, assuming the entity is resident in a country with which Spain has signed a double tax treaty that includes an exchange of information clause, which would apply to this entity).

When a group of companies is being transferred, these requirements must be met by all the group companies. In addition, there are certain rules – the application of which is often quite complex – used to determine whether these requirements are met. If all the companies do not meet the requirements, these rules are applied to calculate the part of the income obtained that is exempt.

However, meeting all the requirements doesn't automatically result in a corporate income tax exemption. In certain cases, either the exemption may not be applicable or is only partially applicable.

These exceptions include related companies – whether resident in Spain or not – which are defined in the CIT Law as "pure holding companies" (entidades patrimoniales). This refers to companies in which more than half of the assets, according to the balance sheet, are made up of securities or are not linked to any economic activity. The rule specifies the parameters for these purposes.

Of the specific provisions contained in the CIT Law in respect of these new "pure holding companies", the tax treatment of income obtained by an entity's shareholders from the transfer of their shares should be noted. This income does not qualify for the exemption because the exemption would only apply to undistributed profits generated from its acquisition. This rule is also applicable when the "pure holding company" forms part of a group of companies that is being transferred, in which case the exempt part of the gain obtained must be calculated by applying certain complex rules set out in the said law.

However, no specific treatment is stated for dividends distributed by these companies to their shareholders, nor for the income obtained by these companies from the transfer of other entities which are not "pure holding companies". This can, in certain cases, give rise to double taxation, which the rules fail to rectify (since the income from the transfer of the "pure holding company" and any profit subsequently generated by such entity are both taxed), although in some situations it is possible to avoid this.

Of the various conclusions to be drawn from this brief outline:

  • Particular care should be taken when analysing the taxation in Spain of transfers of shareholdings in companies or groups of companies; and

  • It is advisable to review the tax structure of corporate groups in the light of this new parameter introduced by the CIT Law.

Gonzalo Gallardo (

Garrigues Madrid

Tel: +34 915145200


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