Exit tax in Spain — Taxation on change of residence when holding significant shareholdings

Exit tax in Spain: what it is and why it matters before leaving the country

The exit tax is the levy on unrealised capital gains in company shareholdings when the holder transfers their tax residence outside Spain. It is governed by article 95 bis of Ley 35/2006 (LIRPF) and is one of the most significant, and most frequently overlooked, tax considerations for entrepreneurs, founders and major investors resident in Spain who are contemplating a move abroad.

The mechanism is straightforward but economically substantial: at the moment the change of tax residence occurs, the law treats the shareholdings as if they had been sold at market value on that date. The difference between that market value and the acquisition price constitutes a capital gain that must be taxed in the IRPF return for the year of departure, even though the shareholdings have not actually been sold.

The exit tax was introduced in Spain in 2015 through Ley 26/2014, which amended the LIRPF to incorporate this mechanism. Its stated purpose is to prevent the tax avoidance technique of transferring residence to a low-tax country just before selling shareholdings with large accumulated gains, so that the gain would be taxed in the destination country at lower rates.

Who is affected by the exit tax?

The exit tax does not apply to every resident who leaves Spain. It applies exclusively when two cumulative conditions are met:

Condition 1: Prior residence in Spain

The taxpayer must have been a Spanish tax resident for at least 10 of the last 15 years immediately preceding the last tax period in which they are taxed as a resident. This temporal requirement ensures the exit tax does not apply to taxpayers who are briefly present in Spain or to those under the special regime of the Beckham Law (régimen especial, Ley Beckham), which allows taxation solely on Spanish-source income without including worldwide income in the taxable base.

Years spent under the Beckham Law special regime do not count towards the 10-year threshold for exit tax purposes, since that regime involves a form of quasi non-resident status.

Condition 2: Shareholdings of significant value

The taxpayer must hold interests in entities that exceed one of the following quantitative thresholds on the date of the change of residence:

• Threshold 1: market value of interests in one or more entities exceeding 4 million euros in aggregate. There is no requirement to hold a controlling or majority stake; if the total portfolio value exceeds 4 million euros, the exit tax is triggered.

• Threshold 2: an interest in a single entity representing more than 25% of the share capital of that entity and with a market value above 1 million euros. This threshold is designed for founders or controlling shareholders of medium-sized companies who do not reach 4 million euros in total portfolio value but do hold control of the entity.

If the shareholdings fall below both thresholds, the exit tax does not apply and the change of residence generates no additional IRPF obligations under this provision.

How the exit tax capital gain is calculated

The capital gain taxed by the exit tax is the difference between the market value of the shareholdings on the date of the change of residence and their acquisition value (purchase price plus inherent costs, such as acquisition commissions).

Valuation of shareholdings

Valuation of shareholdings for exit tax purposes follows specific rules by entity type:

Securities listed on regulated markets: market value is the quoted price on the date of the change of residence (or the average price of the last quarter if the taxpayer holds a significant interest that could affect the price).

Interests in unlisted entities: market value is determined as the higher of the following two values:

• The net asset value of the entity (assets less liabilities) attributable to the interest, per the last balance sheet closed before the change of residence.
• The value resulting from capitalising at a rate of 20% the average results over the three most recent financial years closed before the departure.

This dual valuation rule can produce significant discrepancies between the book value and the “economic” value of an interest. In high-growth, low-asset companies (start-ups, digital platforms), the capitalised earnings value can far exceed the net asset value. An independent valuation report is advisable to support the taxpayer’s position in the event of an AEAT audit.

Applicable rates

The exit tax capital gain is taxed in the savings income base of the IRPF, at the following rates:

For a company where shareholdings are valued at 10 million euros and the acquisition cost was 1 million euros (an unrealised gain of 9 million euros), the exit tax liability can exceed 2.5 million euros.

The exit tax deferral: the EU and EEA option

The rules provide a special deferral regime for taxpayers who transfer their residence to an EU Member State or to EEA countries (Iceland, Liechtenstein, Norway) with which Spain has an effective tax information exchange agreement.

Deferral allows payment of the exit tax to be postponed until one of the following events occurs:

• Actual disposal of the shareholdings (sale, gift, dissolution of the entity)
• Transfer of residence to a third country outside the EU/EEA
• Failure to comply with the obligation to notify the AEAT annually of the retained shareholdings and their valuation

Deferral is requested in the IRPF return for the year of the change of residence, by marking the specific option provided in the form. No late-payment interest accrues during the deferral period while its conditions are met.

Countries where deferral is available: all EU Member States (France, Germany, Italy, Portugal, the Netherlands, Belgium, Ireland, etc.) and the three non-EU EEA countries (Iceland, Liechtenstein, Norway).

Countries where deferral is not available: the United Kingdom (since Brexit), the US, Switzerland, the United Arab Emirates, Singapore, Monaco, Panama, and any other country outside the EU/EEA.

Exit tax implications for popular destinations of Spanish residents

Relocation to the United Arab Emirates (Dubai)

Relocation to Dubai is particularly popular among Spanish entrepreneurs and content creators. As it falls outside the EU/EEA, no deferral is available. If the quantitative thresholds are met, the entire unrealised capital gain must be taxed in the year of departure.

The absence of a comprehensive double taxation treaty between Spain and the United Arab Emirates (the treaty signed in 2006 has had limited application) can complicate the situation. BMC analyses on a case-by-case basis whether there is a risk of double taxation with the destination country.

Relocation to Portugal

Portugal, as a Member State of the EU, qualifies for exit tax deferral. Portugal’s NHR (Non-Habitual Resident) regime or its successor the IFICI offers tax advantages to new residents that can be combined with the Spanish exit tax deferral. BMC coordinates tax advice in both jurisdictions to optimise the taxpayer’s overall position.

Relocation to the United Kingdom

Following Brexit, the UK left the EU and EEA. This means that a change of residence to the UK does not qualify for exit tax deferral from January 2021 onwards. The exit tax must be paid in the year of departure for taxpayers who meet the thresholds. The Spain-UK double taxation treaty (CDI España-UK) may be relevant to avoid double taxation if the taxpayer subsequently sells the shareholdings, which will then be taxable in the UK.

Return clause: recovering what was paid if you return to Spain

Spanish law recognises that a change of residence may not be permanent. If the taxpayer who has paid the exit tax recovers Spanish tax residence within five years of the change of residence, and the shareholdings remain in their ownership (not disposed of), they may request rectification of the IRPF self-assessment and a refund of the amounts paid as exit tax.

This return clause has practical importance for entrepreneurs who leave temporarily for a specific project or for those testing a move without a definitive decision. However, if the shareholdings are sold during the period spent outside Spain, the exit tax paid is not recoverable, since the actual disposal will already have occurred outside Spain.

Exit tax planning: key points before acting

The exit tax requires advance planning. The most important points to analyse before changing residence are:

1. Do you meet the thresholds? If the value of your shareholdings is below 4 million euros and your interest in each entity is below 25%, the exit tax does not apply.

2. Which destination are you choosing? The choice of destination country determines whether you qualify for deferral. For large business portfolios, deferral can make a difference of millions of euros.

3. What is the optimal timing for departure? The exit tax is calculated on market value at the date of the change of residence. If you are in a year of low valuations or ahead of a significant valuation event (investment close, IPO), the exit tax base can be significantly reduced.

4. Can you reduce the exit tax base before leaving? There are legitimate corporate transactions, including capital reductions, distribution of previously taxed dividends and partial disposals, that can reduce the value of shareholdings subject to the exit tax before the change of residence. BMC assesses their viability and tax consequences.

5. What is the tax treatment in the destination country? The exit tax can generate an elevated tax cost base in the destination country (step-up), reducing the future gain that will be taxed there when the shareholdings are sold. Coordination with advisers in the destination country is essential.

BMC provides comprehensive advisory on the exit tax, coordinating Spanish planning with the destination country’s tax rules to achieve the optimal solution for each client.