Spain takes its share of a dividend before the money leaves the company. Do you know how much, and what proof lets you pay less?

A Spanish company that pays a dividend to a non-resident shareholder without a permanent establishment in Spain must withhold non-resident income tax (IRNR). The domestic rate on dividends is 19%. The company pays the withholding to the tax authority. If tax was withheld, the shareholder generally files no Spanish return for that income.

Two ways to pay less

The first is a tax treaty. Spain's treaties can cap the rate on dividends. The cap depends on the treaty and sometimes on the size of the holding, so read the one that applies to your country of residence. The withholding is calculated under the treaty where it applies.

The second is the EU parent-subsidiary rule. Under Spanish law, profits distributed to a parent company resident in another EU member state are exempt, and no withholding applies, if:

The exemption is for companies, not individuals. It also does not apply where most of the parent's voting rights belong to persons outside the EU and EEA, unless the parent exists for valid economic and business reasons. EEA parents can qualify too, if their country exchanges tax information effectively.

The paperwork

To apply a treaty cap or an exemption, the paying company needs a certificate of tax residence issued by the tax authority of your country. For a treaty, it must state that you are resident in the sense of the treaty. If the treaty has a specific form approved by a Spanish Order, that form replaces the certificate. A certificate is valid for one year from issue.

The paying company should hold these documents when it pays, and keep them. If it skips withholding on the strength of an exemption that later fails, it answers for the tax not withheld.

Picture a Dutch holding company that owns 30% of a Barcelona SL and has done so for three years. If its residence certificate reaches the SL before the dividend is paid, and every condition is met, no tax is withheld. If it arrives late, 19% is withheld. The holding can then ask for a refund on form 210 within four years.

Send the certificate before the dividend, not after.

This article reflects the position at its publication date. Rules change, so check them against your own case before acting.

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