Holdings: dividend exemption

At the time of creating a company or a business structure, the advantages of creating a are often assessed. Business holding, that is, a corporate structure in which a holding company has as its corporate purpose participation in third-party companies.

The creation of said structure may have, among other objectives:

• Centralize the management of the investee entities.
• Improve the image of solvency vis-à-vis third parties.
• Overcome financial limitations of subsidiaries.
• Facilitate the future transmission of the business to descendants.

What is a holding company, and what is a holding company?

Suppose you need to become more familiar with these terms. In that case, you should know that a holding company is a group of companies in which there is a company (holding company) that holds a stake, majority or not, in other companies (participates).

What advantages does a business holding company provide?

The advantages that holding company structures can provide you are, among others, the following:

• Each business area is independent since each activity can be attributed to a different company.
• It is easier to make decisions because they come from the holding company.
• Improving the business image since it transmits solidity and solvency and guarantees continuity.
• The distribution and reduction of economic risk are distributed among the different companies.
• The possibility of offsetting the losses of one company with the profits of others.
• Reductions in taxation for the Inheritance and Donation Tax.
• There is the possibility of paying taxes under the consolidation group regime in Corporate Tax and Value Added Tax.

Exemption on dividends and income from Corporate Tax

In addition to the advantages described above, there is another additional tax advantage that deserves to be treated separately, which refers to the distribution of dividends, which is regulated in article 21 of the Corporate Tax, which establishes that dividends are exempt received from investee entities when a series of requirements are met:

• That the participation percentage is at least 5%.
• In the case of participation in the capital of entities not resident in Spanish territory (obtaining dividends in foreign entities), the investee entity must have been subject and not exempt from a tax of an identical or analogous nature to the IS, with a nominal rate of at least 10% in the year in which the profits that are distributed were obtained.

It should be noted that in the General State Budgets for the year 2021 approved by Law 11/2020, of December 30, < substantial>the exemption has been reduced from 100% to 95% of the dividends received .

This reduction of the exemption will not be applicable when these circumstances occur:

1. dividends obtained by entities with a net turnover of the previous year of less than 40 million euros and that are not previously proprietary entities or are part of a group of companies, nor do they have a percentage of participation in the capital of another entity equal to or greater than 5%
2. that come from a subsidiary in which it has a 100% stake and that is established after 01/01/2021
3. that are distributed within three years following the constitution of the company that distributes them.

On the other hand, when certain requirements are met, there will also be an exemption of 95% of the capital gains generated in the transfer of the shares held by the holding company.