As of January 2021, based on the approval of the General State Budget Law (called LPGE) of 2021, the section related to the exemption of dividends received by subsidiary companies is modified, both foreign as well as Spanish subsidiaries, and which are defined in article 21 of the Corporate Tax Law, better known as 'Participation Exemption'.

1- A 95% limitation is introduced to the exemption, that is, the full exemption of 100% of dividends and capital gains disappears, 5% of them being taxable, unless the following:

a. The Spanish company that receives the dividends or capital gains has a net turnover of less than 40 million euros in the previous tax year.
b. It is not a patrimonial entity as established in article 5.2 of the LIS
c. He did not become part of a group before the establishment of the subsidiary, nor did he already have a direct or indirect participation percentage in other entities of at least 5% before said incorporation.
d. Their participation is in full (100%) and directly from the incorporation of the subsidiary.
e. The company from which the dividends or capital gains come is incorporated from January 1, 2021 onwards.

In this case, only dividends or benefits received in the three periods following the incorporation of the subsidiary company will enjoy full exemption, without limitation.

2- The exemption will only apply to those participations in which the percentage of participation in the capital stock of the entity from which the dividends or benefits originate, is, at least, 5%, regardless of their acquisition value, for which eliminates the exemption in those companies whose acquisition value exceeds 20 million but does not reach 5% ownership.

3- In the tax consolidation regime, the limitation will also apply, so that only 95% of the dividends or internal benefits will be delete, except in exceptional circumstances.