Can a company sell shares in another company and not pay taxes on the profit?
Yes, but there are some important nuances.
The Corporate Income Tax Law allows for the application of the exemption under Article 21 of the LIS when a corporation transfers shares in another entity and realizes a gain. However, this exemption is not automatic, nor does it always cover 100% of the gain.
In 2026, the general rule is that the tax exemption on the sale of equity interests will amount to 95% of the capital gain. The remaining 5% is included in the taxable income of the transferring company.
Whether to include the entire profit in the tax base or just 5% can make a decisive difference for the transaction. The risk begins when that result is factored into the price before the requirements have been verified.
In 30 Seconds: Key Points About the Exemption for the Sale of Shares
- A corporation may claim the exemption under Article 21 of the Corporate Income Tax Law for the gain realized on the sale of equity interests in another entity if it meets the legal requirements.
- In 2026, the general exemption covers 95% of positive income, not 100%; the remaining 5% is included in the taxable income.
- The transferring company must hold a direct or indirect stake of at least 5% and must have held it, generally speaking, for one year.
- The previous reference to an acquisition value exceeding 20 million euros should no longer be treated as a general rule in effect in 2026.
- The exemption may be limited if the transferred company is an investment company, a holding company, or a subholding company; if the investee is a nonresident; or if the equity interests result from a restructuring.
- The review must be conducted before agreeing on price, tax guarantees, or indemnity clauses.
Before applying the exemption to the sale price, it is necessary to verify the percentage of ownership, the holding period, the nature of the transferred company, and any applicable restrictions on investment companies, holding companies, nonresident entities, or shares resulting from restructurings.
In what order should you review the exemption before selling?
A review of the tax exemption on the sale of shares is most useful when it is conducted in a specific order.
These are the conditions that must be clarified before moving forward.
Minimum order quantity to be reviewed before setting the price
- Confirm the general requirements: ownership percentage, date and method of acquisition, and holding period.
- Identify the limitations: the investee’s place of residence, its status as an investment entity, its holding company structure, and prior restructuring transactions.
- Calculate the potentially exempt portion: set aside reserves, unrealized capital gains, goodwill, and any non-exempt income.
- Gather supporting documentation: deeds, annual financial statements, balance sheets, corporate books, valuation reports, and prior tax documentation.
- Apply the results to the negotiations: review their impact on the price, tax guarantees, and indemnity clauses.
This rule does not replace a case-by-case analysis, but it prevents a limitation from arising once the price and the allocation of risks have already been finalized.
When Can the Tax Exemption Apply to the Sale of Shares?
A corporation may claim the tax exemption for the sale of equity interests when it transfers equity interests in another entity, realizes a gain, and meets the requirements set forth in Article 21 of the Corporate Income Tax Law.
Generally speaking, the tax exemption on the sale of equity interests allows the transferring company to exclude the entire gain realized from its taxable income. Since 2021, this exemption has generally applied to 95% of the capital gain.
“The exemption under Article 21 of the Income Tax Law can substantially reduce the tax liability on the sale, but it should not be included in the price until the requirements and limitations have been verified.”
The remaining 5% is included in the tax base as an administrative expense. Therefore, in practice, the transaction may be subject to very low taxation, but it should not be presented as a total exemption.
The application of this regime requires a review of the transferred equity interest, the holding period, the residence of the investee entity, its capital structure, and the tax history of the transaction.
What is the exemption under Article 21 of the Corporate Income Tax Law, and what is its purpose?
The exemption under Article 21 of the Corporate Income Tax Law (LIS) is a provision set forth in Law 27/2014 on Corporate Income Tax, applicable to certain dividends and income derived from the transfer of equity interests in other entities.
In this article, we focus on the second situation: the capital gain realized when a company sells its shares in another company.
The purpose of this system is to prevent the same economic income from being taxed multiple times within a corporate chain.
Example of Economic Double Taxation
If a subsidiary has generated profits that have already been taxed under its own corporate income tax and, subsequently, the parent company sells its shares, realizing a capital gain that reflects those accumulated profits, Article 21 of the Corporate Income Tax Law (LIS) may prevent that same economic income from being taxed in full again, provided that the requirements and limits set forth in the statute are met.
The rule may also apply in other related situations, such as the liquidation of the entity, the withdrawal of a partner, a merger, a total or partial spin-off, a capital reduction, a non-cash contribution, or a global transfer of assets and liabilities.
Key point: Tax exemption on the sale of shares does not depend solely on whether a gain is realized, but rather on whether the transferred shares meet the legal requirements at the appropriate time.
Before we continue: selling shares is not the same as selling assets
The first decision that affects the tax analysis is very specific: Should the shares be sold, or should the company’s assets be sold? Because the two are not the same—just as the situation is different when the sale is made by an individual.
- If the entity transferring the shares is a corporation, Article 21 of the Corporate Income Tax Law may apply.
- If the seller is an individual, the tax treatment must be reviewed in accordance with other rules, typically related to personal income tax.
This difference is important in business sales transactions. Tax treatment may vary depending on who is selling, what is being transferred, and how the transaction is structured.
If the sale of ownership interests is part of a broader transaction, it is advisable to also review the tax landscape before selling a company: price, risks, guarantees, contingencies, the seller’s structure, and post-transfer effects.
Do you know how to structure the sale from a tax perspective before negotiating?
Tax treatment varies depending on who is selling and whether the transaction is structured as a sale of equity interests or a transfer of assets. At Carrillo, we review the tax structure before the price and terms are finalized.
General Requirements for Claiming a Tax Exemption on the Sale of Shares
The 5% threshold and the one-year holding period seem like straightforward requirements when we talk about tax exemptions on the sale of equity interests. But they are no longer so straightforward when the equity interest was acquired in installments, underwent a restructuring, or is held by multiple companies.
Minimum stake of 5%
The transferring company must hold a direct or indirect interest of at least 5% in the capital or equity of the transferred entity.
This requirement must be met on the day the transfer takes place.
What matters is the selling company’s stake, not necessarily the percentage being sold. This becomes clearer with two examples:
- If a company owns 20% of another entity and transfers only 3%, it may apply the exemption if the other requirements are met.
- On the other hand, if the transferring company holds less than a 5% stake, it will be necessary to determine whether any specific rules apply or whether the transaction falls outside the scope of the exemption.
Maintenance for at least one year
Participation must have continued for at least one year.
This requirement necessitates reviewing when the equity interest was acquired and whether there have been any acquisitions in stages, capital increases, securities exchanges, mergers, spin-offs, or changes in the corporate structure. In addition, the holding requirement must be met as of the date of sale.
95% Tax Exemption on the Sale of Shares: Why It’s Not a Full Exemption
In 2026, the general exemption under Article 21 of the Corporate Income Tax Law (LIS) does not cover 100% of the capital gain realized on the sale of shares; generally, it applies to 95%.
The remaining 5% is included in the transferring company’s taxable income as an operating expense.
Practical Example
If a company realizes a gain of 1,000,000 euros from the sale of shares and meets the requirements of Article 21 of the Corporate Income Tax Law (LIS), the general exemption would be 950,000 euros.
The remaining 50,000 euros would be included in the corporate income tax base of the transferring company. That amount is not the tax liability: the tax liability will depend on the tax rate and the other rules applicable to the company.
The jump from 1,000,000 to 50,000 euros in taxable income explains why the exemption is so significant and why it is best to avoid absolute statements such as “not paying taxes” without further clarification.
The old 20-million-euro rule in 2026
For years, Article 21 of the Corporate Income Tax Law provided for an alternative to the 5% requirement based on the condition that the acquisition value of the equity interest exceed 20 million euros, even if that percentage was not met.
That rule was repealed effective in 2021, although a transitional provision was established for certain equity interests acquired before January 1, 2021.
That transitional regime applied to tax periods beginning in 2021, 2022, 2023, 2024, and 2025.
Therefore, in 2026, it should not be treated as a general, currently applicable alternative for new transactions.
What happens if shares in a nonresident entity are sold?
When the company whose shares are being transferred is not resident in Spain, the exemption may apply, but it requires further review.
In addition to the general requirements, the nonresident investee must have been subject to—and not exempt from—a foreign tax of an identical or analogous nature to corporate income tax, with a nominal rate of at least 10%.
This requirement must be analyzed during the relevant fiscal years of the holding period.
The regulation provides that the requirement may be deemed to be met when the investee is a resident of a country with which Spain has entered into a double taxation treaty containing an information exchange clause, without prejudice to the specific rules applicable to each case.
When a Spanish company channels investments into foreign subsidiaries, it may also be advisable to analyze whether an ETVE for holdings in foreign subsidiaries provides a more favorable tax structure for the international investment.
Are you going to sell shares in another company?
If the exemption has already been used to set the price or allocate risks between the buyer and seller, it is advisable to verify, before signing, whether the requirements of Article 21 of the LIS are met and whether there are any limitations.
What happens if the 10% requirement is not met every year?
If the nonresident entity has not met the requirement regarding the 10% analogous tax for all relevant fiscal years during the holding period, the exemption may be partial after the income is allocated to the corresponding fiscal years and components in accordance with Article 21 of the Corporate Income Tax Law (LIS).
The regulation generally distinguishes between two categories:
- Profit linked to reserves: Only the portion of the profit corresponding to earnings generated in fiscal years in which the requirement was met will be exempt.
- Unrealized capital gains and goodwill: The portion of the gain that exceeds the reserves is deemed to have been generated on a straight-line basis over the holding period, unless proven otherwise.
Without that reconstruction, it is not possible to determine with sufficient certainty what portion of the profit is exempt.
In international transactions, the due diligence should be completed before agreeing on the price, tax guarantees, or indemnity clauses.
Limits on the exemption: assets, non-cooperative jurisdictions, and lack of substance
The investment may meet the 5% threshold and the one-year holding period, yet the exemption may still be limited. This occurs when the ownership structure of the transferred company or the source of the income requires distinguishing which portion of the gain may be exempt.
If the transferred company is an investment company
If the company whose shares are being sold is classified as an investment entity, the exemption may be limited.
For purposes of the Corporate Income Tax Law (LIS), an investment entity is one in which more than half of its assets consist of securities or assets not used in an economic activity.
In these cases, the exemption does not necessarily apply to the entire capital gain. The rule may exclude the portion of the income that does not correspond to an increase in retained earnings generated by the investee during the holding period.
In practice, it is advisable to distinguish between two types of income:
- The portion of profits linked to reserves generated, which may be exempt if the requirements are met.
- The portion of the profit attributable to unrealized capital gains, goodwill, or asset revaluation, which may not qualify for the exemption.
This analysis is particularly relevant for companies that own real estate, financial portfolios, accumulated cash, or assets not used in economic activities.
If the investee is located in a non-cooperative jurisdiction
Another sensitive issue is the tax residency of the investee company.
If the company whose shares are being transferred is located in a non-cooperative jurisdiction, the application of the exemption may be blocked or limited.
Spanish regulations have gradually replaced the traditional reference to “tax haven” with that of “non-cooperative jurisdiction.”
But the change in terminology does not eliminate the underlying problem: the exemption should not be used to shield income channeled through low- or no-tax jurisdictions without a sound economic justification.
The documentation must demonstrate the nature, substance, and economic rationale of the investment; the percentage of ownership, by itself, is not sufficient to satisfy this analysis.
Practical Note
When the investee is located in a sensitive tax jurisdiction, the analysis should not be limited to the ownership percentage. It is also advisable to review its business activities, economic substance, effective residence, actual taxation, and available documentation.
Sale of a holding company or subholding company: Why It’s Important to Look Beneath the Surface
When selling a holding company, it is not enough to look only at the direct stake in the company being sold. You have to analyze what lies beneath.
When the transferred company is a holding company or a sub-holding company, the application of the exemption may also depend on its subsidiaries, its income, and any indirect equity interests that exist within the corporate structure.
Specifically, when the transferred company receives dividends, profit shares, or income derived from the sale of shares that account for more than 70% of its revenue, it may be necessary to determine whether the selling company holds an indirect stake of at least 5% in the underlying subsidiaries.
Does your structure include a holding company?
In multi-entity structures, the exemption may also depend on the underlying subsidiaries, the indirect ownership, and the holding company’s revenue composition.
Shares Derived from Restructurings: Why Tax History Matters
In a sale of ownership interests, the source of the interest can be just as important as the percentage being transferred.
If the shares result from a merger, spin-off, non-cash contribution, securities exchange, or other transaction subject to the special tax-neutrality regime, the exemption on a subsequent sale may be limited.
This can occur when the prior transaction allowed for the deferral of income that would not have been eligible for an exemption at source.
There are also specific rules that apply when the contributors were individuals and the subsequent transfer of shares occurs within certain time frames.
What to Check If There Was a Previous Restructuring
- The transaction that gave rise to the equity interests.
- If the special tax neutrality regime was applied.
- What is the tax basis of the transferred shares?
- If there was deferred income.
- Who made the prior contribution or transfer.
- If the deferred income had been eligible for an exemption.
Price, Valuation, and Calculation of the Exempt Capital Gain
The tax calculation of the income derived from the sale of equity interests is generally based on the difference between the sale price and the tax basis of the equity interest, which may not match its book value.
In a corporate transaction, that subtraction is just the starting point. The price can reflect a wide variety of factors.
- Accumulated reserves.
- Unrealized capital gains on assets.
- Goodwill.
- Know-how.
- Client portfolio.
- Expectations for future profitability.
It is also necessary to explain which portion is eligible for the exemption and which portion may be subject to a legal restriction.
The valuation must be well documented, especially when the transaction involves related parties, takes place within a group, or occurs in the context of a corporate reorganization.
Tax Review of Valuation and Capital Gains
If you have any questions, at Carrillo we analyze the accrual of capital gains, the potentially exempt portion, and the documentation needed to support the tax treatment of the transaction.
Practical Table: When the Exemption Applies and When It May Be Limited
The following table summarizes the most common scenarios involving the application of the exemption under Article 21 of the Corporate Income Tax Law (LIS) for the sale of equity interests.
SettingCan you apply for an exemption?Main LimitWhat to Check Before SellingSale of Shares in a Resident CompanyYou may apply the 95% exemption if the requirements of Article 21 of the LIS are met.Failing to reach 5% or failing to meet the holding period requirement.Percentage, date of acquisition, tax basis, and corporate documentation.Sale of Shares in a Nonresident EntityYou may apply if the requirement for a 10% equivalent tax is also met.The minimum tax requirement was not met during the relevant fiscal years.Residency, applicable CDI, historical taxation, and holding period.Sale of a Holding CompanyIt may apply to a limited extent.Implicit capital gains or goodwill should be excluded from the exemption.Asset Composition, Economic Activity, Reserves, and Valuation.Sale of a holding company or subholding companyIt may apply, but indirect holdings must be reviewed.Failure to reach the 5% indirect ownership threshold in relevant subsidiaries.Revenue from the holding company, underlying subsidiaries, indirect ownership percentages, and holding period.Equity Interests Arising from RestructuringIt may apply with restrictions if there are deferred rents.The prior transaction must have deferred income that is not eligible for an exemption.Acquisition history, neutrality rule, contributors, and deferred income.Involved in a non-cooperative jurisdictionIt may be blocked or restricted, depending on the circumstances.Lack of effective taxation, substance, or economic justification.Residence, actual activity, economic grounds, documentation, and applicable regulations.
Checklist: What to Review Before Selling Company Shares
Before selling shares and applying the exemption under Article 21 of the Corporate Income Tax Law (LIS), it is advisable to organize the tax, corporate, and documentary analysis of the transaction.
- Percentage of ownership: Confirm whether the transferring company holds, directly or indirectly, at least 5 percent.
- Date and method of acquisition: Review when and how the shares were acquired.
- Holding period: Verify whether the investment has been held for at least one year.
- Tax residence of the investee: verify whether it is resident in Spain, in another country with a tax treaty, or in a sensitive tax jurisdiction.
- 10% Analog Tax: If the investee is a nonresident, verify whether it has been subject to—and not exempt from—a comparable tax.
- Asset Classification: Determine whether more than half of the assets consist of securities or items not used in economic activity.
- Holding company structure: Review indirect ownership interests, the company’s revenue, and its underlying subsidiaries.
- Prior Transactions: Identify mergers, spin-offs, non-cash contributions, securities exchanges, or restructurings eligible for deferral.
- Calculation of profit: separate reserves, unrealized capital gains, goodwill, and any non-exempt income.
- Supporting documentation: gather deeds, annual financial statements, balance sheets, corporate records, appraisal reports, and prior tax documentation.
- Impact on Negotiations: Assess how taxation affects the price, tax guarantees, and indemnity clauses.
Conclusion: The tax exemption on the sale of shares should be reviewed before signing.
In a sale of equity interests, the exemption may affect the net price, the allocation of risks, and the terms of the tax guarantees.
If the requirements of Article 21 of the Corporate Income Tax Law (LIS) are met, the transferring company may claim a significant exemption on the gain realized. In 2026, that exemption generally applies to 95% of the positive income.
However, before signing, management must know what portion of the profit may be exempt and what facts support that conclusion.
Would you like to review the tax implications of a sale of shares?
At Carrillo, we review the application of Article 21 of the Income Tax Law (LIS), its limitations, and the corporate structure before tax considerations are factored into the price and the guarantees of the transaction.
Frequently Asked Questions About the Tax Exemption on the Sale of Shares
Here are some common questions that arise when a company considers selling shares in another entity and applying the exemption under Article 21 of the Corporate Income Tax Law.
What is the tax exemption on the sale of equity interests?
It is the exemption provided for in Article 21 of the Corporate Income Tax Law for the capital gain realized by a corporation upon the transfer of shares in another entity, provided that the legal requirements are met.
Is the tax exemption for the sale of shares 100%?
Not generally speaking. In 2026, the standard exemption is 95% of the capital gain. The remaining 5% is included in the transferring company’s taxable income as a management expense.
What percentage of ownership is required to qualify for the exemption?
The transferring company must hold, directly or indirectly, at least 5% of the capital or equity of the transferred entity. What matters is the ownership interest held, not necessarily the percentage being sold.
Can I claim the exemption if I sell less than 5%?
Yes, if the transferring company owns at least 5% of the investee and meets the other requirements. For example, a company that owns 20% of another company can sell 3% and claim the exemption if the other legal conditions are met.
Does the tax exemption on the sale of shares apply if the seller is an individual?
Not under the same terms. The exemption under Article 21 of the Corporate Income Tax Law (LIS) applies to corporations subject to corporate income tax. If the seller of the shares is an individual, the tax treatment must be determined in accordance with other rules.
Can the exemption apply if the investee company is foreign?
Yes, but in addition to the general requirements, it must be verified that the nonresident entity has been subject to—and not exempt from—a foreign tax of an identical or analogous nature to corporate income tax with a minimum nominal rate of 10%, except as provided by specific rules under double taxation treaties.
What happens if the sold company is a holding company?
If the transferred company is a holding company, the exemption may be limited. In particular, it may not cover the portion of income related to unrealized capital gains, goodwill, or assets not used in an economic activity.
What happens if a holding company or subholding company is sold?
When a holding company or subholding company is sold, the indirect ownership interests in the underlying subsidiaries must be reviewed. If the holding company derives more than 70% of its income from dividends or gains on the sale of equity interests, it may be necessary to comply with requirements at the indirect level.
Does it make a difference if the shares result from a restructuring?
Yes. If the shares result from a merger, spin-off, non-cash contribution, securities exchange, or other transaction covered by the special deferral regime, the exemption may be limited. It is necessary to review which income was deferred and whether it would have been eligible for an exemption.
Does “5% being included” mean paying a 5% tax?
No. Generally speaking, 5% of the net income to which the exemption applies is included in the tax base. The tax liability will depend on the tax rate and the other rules applicable to the transferring corporation.
When is it advisable to conduct a tax review of the sale of shares?
Before signing the transaction and, in practice, before agreeing on the price, tax guarantees, or indemnity clauses. A preliminary review allows you to confirm whether the exemption applies and whether there are any limits that could affect the tax basis.
Regulatory References Regarding Tax Exemptions on the Sale of Equity Interests
To review the tax exemption on the sale of corporate shares, it is always advisable to refer to official and up-to-date regulations.
- Law 27/2014, of November 27, on Corporate Income Tax. Article 21, regarding the exemption of dividends and income derived from the transfer of equity interests.
- Administrative doctrine and case law applicable to Article 21 of the Income Tax Law (LIS), which must be identified and reviewed based on the specific facts of each transaction.
This article on tax exemptions for the sale of equity interests is for informational purposes only and does not constitute personalized tax advice. The specific application of the exemption under Article 21 of the Corporate Income Tax Law depends on the corporate structure, the residency of the entities, the history of acquisitions, and the applicable regulations and interpretations in each case.
