All material subject to strictly enforced copyright laws. © 2022 ITR is part of the Euromoney Institutional Investor PLC group.

Spain: New taxation of capital gains obtained by non-residents


Luis Manuel Viñuales

So far 2015 has been an exciting year for Spanish tax practitioners thanks to the major reforms we have seen in the area of income taxes. Although the focus has been on a brand new Corporate Income Tax Law and on the relevant changes to the Personal Income Tax Law, we should not overlook the amendments made to the Non-Resident Income Tax Law (NRIT Law) and, in particular, to the tax treatment of capital gains obtained by non-residents on the transfer of shares of Spanish companies. The domestic NRIT Law in force until December 31 2014 stated that capital gains obtained by EU residents on the transfer of shares of Spanish entities could only be taxed in Spain if a) the underlying assets were mainly real estate located in Spain or if b) the seller owned at least 25% of the company during the 12 months before the transaction. Capital gains obtained by non-EU residents on the sale of Spanish non-listed entities were always taxed in Spain unless a tax treaty provided otherwise.

Furthermore, over the past few years the Spanish Tax Administration had renegotiated a number of tax treaties to include 'substantial participation clauses' and/or 'underlying real estate assets clauses', aimed at taxing in Spain capital gains obtained by non-residents where they owned a substantial participation in a Spanish company or where the assets of the Spanish company consisted, mainly, of real estate located in Spain.

Just when the Spanish Tax Administration's trend and aim seemed clear (that is, to tax in Spain gains on substantial participations and on the sale of real estate companies), some surprising changes have arisen in the tax treatment of capital gains as of January 1 2015, which may significantly alter the landscape as follows:

  • The substantial participation clause included in the NRIT Law is now limited to private EU individuals only, without applying to EU entities. Thus, capital gains obtained by EU-resident entities that would have been taxed in Spain until December 31 2014, also based on those tax treaties which included a substantial participation clause (this was the case, for example, for French entities owning Spanish affiliates) will not be taxed any longer, based on Spanish domestic law, if sold or transferred after January 1 2015.

  • The underlying real estate assets clause, however, remains in place in the NRIT Law. But there is an issue as to whether this clause might have become discriminatory under EU law, as the gain obtained by a Spanish-resident entity on the sale of a similar Spanish real estate company might now enjoy a domestic CIT exemption. Indeed, the new CIT Law in force as of January 1 2015, provides for a domestic participation exemption regime which may apply to the gain obtained by a Spanish entity on the sale of the participation in another Spanish entity, regardless of whether the assets of the latter consist mainly of real estate located in Spain.

Actually, the new Spanish domestic participation exemption regime might change the way in which many multinational investors structure their investments in Spain, mainly those related to Spanish real estate. Looking for a suitable tax treaty jurisdiction to locate a holding company, paying due attention to substance and business reasons tests, may not be necessary any longer if those reasons exist for having a holding company in Spain. This Spanish holding company could sell the participation in other Spanish entities and distribute the proceeds to either the EU parent free of withholding tax, or to the tax treaty parent applying the reduced dividend withholding tax rates provided by the treaty, normally at lower than rates those applicable to capital gains.

This is an interesting time to review existing investment structures and to innovate going forward, during a period in which the Spanish economy has come back to life and a good number of M&A deals are announced in the Spanish financial press every day.

Luis Manuel Viñuales (, Madrid

Garrigues, Taxand Spain

Tel: +34 91 514 52 00


More from across our site

This week European Commission officials consider legal loopholes to secure minimum corporate taxation, while Cisco and Microsoft shareholders call for tax transparency.
The fast-food company’s tax settlement with French authorities strengthens the need for businesses to review their TP arrangements and documentation.
The full ALP model will be adopted through a new TP regime, which is set to boost the country’s investments and tax certainty.
Tax professionals have called on the UK government to reconsider its online sales tax as it would affect the economy at the worst time.
Tax professionals have called on companies to act urgently to meet e-invoicing compliance targets as the EU plans to ramp up digitisation.
In the wake of India’s ambitious 25-year plan for economic growth, ITR has partnered with leading tax commentators to discuss what the future will look like for India and for the rest of the world.
But experts cast doubt on HMRC's data and believe COVID-19 would have increased the revenue shortfall.
EY’s plan to separate its auditing and consulting businesses might lessen scrutiny from global regulators, but the brand identity could suffer, say sources.
Multinationals are asking world leaders to put a scale on carbon pricing to tackle climate change at the 48th G7 summit in Germany, from June 26 to 28.
The state secretary told the French press that the country continues to oppose pillar two’s global minimum tax rate following an Ecofin meeting last week.
We use cookies to provide a personalized site experience.
By continuing to use & browse the site you agree to our Privacy Policy.
I agree