Dividends are the part of corporate profits that companies decide to divide among their shareholders. A remuneration that corresponds to him for being the owner of the company – the percentage of shares that he owns corresponds to him. This supposes a yield for the beneficiary and must be taxed for them in the Personal Income Tax (IRPF).
Dividend payments are not always made in a single installment. Companies can decide to anticipate a part and, once the annual accounts are closed, pay the final dividend. Depending on when the dividend is collected, it must be taxed in the same year.
Only in 2022, the Spanish stock market will pay more Companies can pay dividends in two ways: in cash or through more shares (flexible dividend). Even, on many occasions, the company itself gives shareholders a choice between both options. Depending on the form chosen, the tax treatment by the IRFP will vary.
Cash dividends in the Income Tax 2022
Cash dividends are included in the income from movable capital, included, in turn, in the tax base of savings. It is important to know that, upon receiving the dividend, the financial intermediary that executes the operation already withholds 19% of the amount received because of personal income tax. From the CNMV they explain that “this withholding is a payment on account of the tax that will have to be settled when the IRPF declaration is made.”
When executing the payment, intermediaries may apply commissions or other types of expenses. These are considered deductible in the income from movable capital. However, “discretionary and individualized management services” are exempt from this deduction.
With the ‘script dividend’ or flexible dividend, the company does not pay in cash, but instead rewards its shareholders with a number -it will vary according to the shares each one possesses- of subscription rights. With this right, the shareholder can decide whether to execute it, receive the shares that correspond to it, or sell it. Subscription rights may also be tradable and bought or sold on stock markets. The choice of the shareholder, again, will mark the tax treatment.
In fact, if the shareholder decides to maintain the rights and execute them to obtain their shares, they will not have to pay income tax, nor will withholding be applied. It will only be necessary to declare when those shares are sold, that is, a capital gain or loss is generated.
To calculate the purchase value of these titles received -necessary to later calculate the equity variation- the same as the shares that have generated the subscription right will be considered. In other words, it will be the result of dividing the total cost between the number of titles, both old and received.
For its part, when the subscription rights are sold in the market, the seller obtains a capital gain that is included in the tax base of savings. In addition, the CNMV highlights that this capital gain “thus obtained is subject to a withholding of 19%.” Selling on the market – where the value is tradable – is different from selling at a fixed price. In the latter case, it will be taxed as if it were a cash dividend. It will be carried out on the basis of savings, but in the section on income from movable capital.
Tax rates based on savings
Dividends are included in the savings tax base along with other items. The result will be the sum of capital gains and real estate income, on which the Tax Agency recognizes the right of compensation. If the balance of one of the two blocks is negative and the other is positive, the negative can be offset up to a limit of 25% of the positive. The remaining losses can also be offset over the next four years.
Once the savings base is obtained, the tax rates are applied. Currently, they range between 19% and 26%. These percentages are applied progressively in installments based on savings. The first 6,000 euros are taxed at 19%. What remains from 6,000 to 50,000 euros, by 21%. From 50,000 euros to 200,000, the base is taxed at 23%. Finally, for income that exceeds 200,000 euros, 26% is taxed.
But, in addition, to determine the result of the personal income tax settlement, the withholdings made to deduct them must be taken into account. Thus, if the withholdings are higher than the resulting quota to be paid, the investor will receive the excess withheld as a result of the IRPF settlement.