Article 21 CIT: Exemption on Dividends and Capital Gains from Shareholdings [2026]

The article 21 of Law 27/2014, of 27 November, on Corporate Income Tax (CIT), establishes the exemption regime on income obtained by an entity resident in Spain derived from dividends and profit participations, as well as income derived from the transfer of shareholdings in the capital of other entities. It is the cornerstone of the taxation of holding companies in Spain.

"Article 21 CIT is probably the most relevant tax provision for any entrepreneur who has shareholdings in several companies. Understanding it well—with its requirements, limits and exceptions—is essential before making any decision about corporate structure."

— Samuel Navarro, founder of Capittal Transacciones

95%

Exemption on dividends and capital gains from qualifying shareholdings. Since the 2021 reform (Law 11/2020), the exemption was reduced from 100% to 95%, generating an effective rate of 1.25%.

Literal text of article 21 CIT (extract of key sections)

Art. 21.1.a) CIT: Participation requirements

"Dividends or profit participations from entities shall be exempt, when the following requirements are met: a) That the percentage of participation, direct or indirect, in the capital or equity of the entity is at least 5 per cent, or that the acquisition value of the participation exceeds 20 million euros."

Art. 21.3 CIT: Exemption on transfer

"The positive income obtained in the transfer of the participation in an entity shall be exempt, when the requirements established in section 1 of this article are met. [...] The requirement provided for in paragraph a) of section 1 must be met on the day the transfer takes place. [...] The requirement of minimum participation of one year must also be met on the day of transfer."

Art. 21.10 CIT: 95% exemption

"The exemption provided for in this article shall be 95 per cent."

This means that the remaining 5% is taxed at the general CIT rate (25%), resulting in an effective rate of 1.25% on the total income.

Art. 21.11 CIT: Exception for small entities

"The provisions of the previous section shall not apply to those entities whose net turnover for the immediately preceding tax period is less than 40 million euros, provided they are not entities that form part of a group [...]"

That is, companies with turnover below €40M that are not part of a group can continue to apply the 100% exemption.

Detailed requirements

Requirement Detail Observations Minimum participation5% of capital (direct or indirect) or €20M acquisition valueBoth direct and indirect participation counts Holding periodMinimum 1 year (can be completed after accrual)The 1-year period is independent of the 24-month FEAC horizon Economic activityThe subsidiary must carry out economic activity (not patrimonial >50%)Evaluated each financial year Minimum taxationThe subsidiary is taxed at minimum 10% CIT (presumption if resident in Spain)Relevant for foreign subsidiaries Not being a patrimonial companyMore than 50% of assets cannot be securities/non-affectedsException: holding with subsidiaries that ARE operational

Practical example: numerical effect of the exemption

Suppose an individual who owns 100% of an operating company with acquisition cost of €500,000 and the company is sold for €5,000,000 Equity Value. Capital gain: €4,500,000.

Scenario Taxation Effective rate Net for seller Direct sale (individual)€1,302,720 (IRPF 19-30%)28.9%€3,697,280 Sale through holding€56,250 (CIT 1.25%)1.25%€4,443,750* Difference€1,246,470 tax saving* If distributed, taxed under IRPF

Important note: The tax saving of €1,246,470 is real if the funds are kept in the holding for reinvestment. If the partner wants to have the money personally, they must distribute dividends that are taxed at 19-28% under IRPF. The definitive saving depends on the subsequent strategy.

The 2021 reform: from 100% to 95%

Law 11/2020 (General State Budget for 2021) modified article 21 CIT, reducing the exemption from 100% to 95%. This affected all entities, except small entities (turnover < €40M and not group), which retain full exemption until 2026.

Frequently asked questions about article 21 CIT

What exemption does article 21 of the Corporate Income Tax Law establish?

Article 21 CIT establishes a 95% exemption (or 100% for small entities that are not part of a group) on dividends received from subsidiaries and on capital gains obtained from the transfer of shareholdings, provided the requirements of minimum participation (5% or €20M), holding period (1 year), economic activity of the subsidiary, and minimum taxation are met.

What is the minimum participation to apply the exemption?

Article 21.1.a) CIT requires a direct or indirect participation of at least 5% of the capital of the participated entity, or alternatively that the acquisition value of the participation exceeds 20 million euros. This requirement must be met on the day of transfer for capital gains.

Does the exemption apply to individuals?

No. Article 21 CIT is an exclusive benefit of Corporate Income Tax, applicable to entities resident in Spain. Individuals are taxed under IRPF, where this exemption does not exist. That is why the incorporation of a holding company (subject to CIT) is the necessary vehicle to be able to apply the exemption of article 21.

What happens with patrimonial companies?

If the participated entity is a patrimonial company (more than 50% of its assets are securities or elements not affected to economic activity), dividends and capital gains from that participation do NOT benefit from the exemption of article 21. The subsidiary must carry out real economic activity.

Sources and references

• Law 27/2014, of 27 November, on Corporate Income Tax, art. 21.
• Law 11/2020, of 30 December, General State Budget for 2021 (modification art. 21.10 CIT).
• DGT, Binding consultations on participation exemption (V0089-22, V1456-23, V2341-24).
• TEAC, Resolutions of April-May 2024 on exemption and anti-abuse clause.

Does your structure meet the requirements of article 21 CIT?

At NRRO and Capittal Transacciones we analyse your particular case and help you optimise the taxation of your shareholdings.

Request consultation

Last update: March 2026. We plan to review this article when the Supreme Court resolves the cassation issues of the Order of 12 March 2025.

If you are considering a sale, here is how a company sale process works in the Spanish mid-market, and you can calculate how much your company is worth as a first step.