Tax treatment of dividends in kind and their valuation

The Dirección General de Tributos (DGT) has clarified the tax treatment applicable to dividends received in kind by shareholders of a company. This resolution addresses the nature of these returns and the methodology required for their correct valuation for Personal Income Tax (IRPF) purposes.

What the DGT has resolved

The binding body determines that both cash dividends and those delivered in kind are considered gross income from movable capital. In the specific case of distributions in kind, the regulations require that the income be valued using the market value of the assets received.

Furthermore, the resolution details the calculation of the gross income. This is obtained by adding the withholding tax to the market value, unless said withholding has been passed on to the shareholder. In situations involving withholdings in kind, the withholding tax shall be determined by increasing the acquisition value or cost for the paying entity by 20 percent.

What it means for you

If you are a shareholder of a company and receive assets instead of cash as part of the distributed profits, your tax responsibility changes compared to a traditional dividend. The main impact lies in the taxable base that you must declare:

• Nature of the income: The asset received is not merely an asset, but income from movable capital.
• Mandatory valuation: You cannot use the book value or the acquisition cost of the company, but rather the market value of the asset at the time of delivery.
• Calculation of income: You must take into account the integration of the withholding tax to avoid errors in the declaration of the gross income.

What you should do

In the event of such a distribution, it is necessary to ensure that the valuation of the asset received is correct according to market parameters. The company is obliged to carry out the corresponding withholding and payment on account, so the shareholder must verify that the information reflected in their tax return matches the nature of the transaction. Given the complexity of calculating the gross income, it is recommended to assess each particular situation to ensure compliance with current regulations.