The India-Spain tax treaty was signed on 8 February 1993 and entered into force on 12 January 1995, and it has since been amended by a 2012 Protocol and modified by the Multilateral Instrument. Read with India as the source state and Spain as the residence state, it limits Indian withholding tax to 15% on dividends and interest, and to 10% on royalties and fees for technical services (the 10% comes through the most-favoured-nation clause and the India-Germany treaty, applied from assessment year 2024-25). A building or installation site creates a permanent establishment only after six months, and the treaty has no separate services permanent establishment clause. On exit, gains on shares of an Indian company can be taxed in India only where the Spanish seller holds at least 10%; smaller holdings are taxed only in Spain. Spain then relieves Indian tax by credit and, for qualifying holdings, by its participation exemption. Treat the figures here as a guide from secondary summaries and confirm them against the treaty text and the current Indian notification before you pay or file.
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Key facts
| Signed / in force | 8 February 1993 / 12 January 1995; amended by a 2012 Protocol; modified by the MLI (in effect for India from 1 October 2019 and for Spain from 1 January 2022) |
|---|---|
| Dividends (Article 11) | 15% of the gross amount, flat, whatever the size of the shareholding |
| Interest (Article 12) | 15%; 0% where the recipient is the Spanish Government, a political subdivision or the central bank |
| Royalties and fees for technical services (Article 13) | 10% of the gross amount, through the most-favoured-nation clause and the India-Germany treaty, from assessment year 2024-25 (Notification 33/2024) |
| Permanent establishment (Article 5) | Fixed place of business; building, construction or assembly project over six months; no separate services PE clause; usual exclusions for storage, display, delivery, purchasing and auxiliary work |
| Capital gains (Article 14) | Shares in an Indian company can be taxed in India if the Spanish seller holds at least 10%; other share gains only in Spain; property-rich companies and real estate taxed where the property is |
| Relief in Spain | Credit for Indian tax up to the Spanish tax on the same income, and the Spanish participation exemption for qualifying holdings |
| Anti-abuse | Limitation of benefits article added by the 2012 Protocol; MLI principal purpose test; Indian General Anti-Avoidance Rule |
Why this treaty matters to a Spanish investor
A Spanish group that owns an Indian company meets the treaty at four moments. The first is when the subsidiary pays money upwards: dividends, interest on a shareholder loan, a royalty for a brand or know-how, or a fee for technical or management services. The second is when Spanish employees or engineers work in India long enough to raise the question of a permanent establishment. The third is on exit, when shares are sold and India and Spain each claim a share of the gain. The fourth is every year in between, when Spain asks for evidence of the Indian tax paid so that it can give relief. A treaty read once at the planning stage and then forgotten is the commonest cause of avoidable withholding tax at the full domestic rate of about 20% plus surcharge and cess.
Two features make the Spanish treaty different from the ones many advisers carry in their heads. The dividend rate is a flat 15% with no lower tier for large shareholders, so it is higher than the 10% that appears in several newer Indian treaties. And the 10% rate for royalties and technical fees is not written into the Spanish treaty at all: it arrives through the most-favoured-nation clause, which imports a lower rate agreed with another OECD member, and Indian tax authorities gave effect to it by notification in March 2024. A Spanish group relying on it should keep a copy of the notification and a short note on why the clause applies.
Tax rates table, article by article
| Article | Income | Treaty rate on payments from India to Spain | Domestic comparison and conditions |
|---|---|---|---|
| Article 11 | Dividends | 15% of the gross amount, flat | Domestic rate on dividends to non-residents is about 20% plus surcharge and cess. The recipient must be the beneficial owner and a Spanish tax resident |
| Article 12 | Interest, general | 15% of the gross amount | Domestic rate is about 20% plus surcharge and cess for most loans; check the lower special rates for some foreign-currency borrowings |
| Article 12 | Interest paid to the Spanish Government, a political subdivision or the central bank | 0% | Applies to the listed bodies only, not to commercial banks |
| Article 13 | Royalties | 10% of the gross amount | Reached through the MFN clause; the royalty must be for the use of, or the right to use, the property or know-how and the recipient must be the beneficial owner |
| Article 13 | Fees for technical services | 10% of the gross amount | Same MFN route and notification; managerial, technical and consultancy services are the usual scope |
| Article 7 | Business profits | Taxed in India only to the extent attributable to a permanent establishment | Net basis; no tax if there is no PE |
| Article 14 | Gains on shares of an Indian company | Taxable in India only if the Spanish seller holds at least 10%; otherwise only in Spain | Domestic law then sets the rate: 12.5% on unlisted shares held more than 24 months |
| Article 14 | Gains on real estate and on property-rich companies | Taxable where the property is | India taxes shares that derive their principal value from Indian immovable property |
| Article 14 | Ships and aircraft in international traffic | Taxable only in Spain | Relevant to shipping and aviation groups only |
| Dependent personal services | Salary of a Spanish resident working in India | Taxable in India unless the day-count and employer conditions are met | Confirm the days and conditions in the text; see the employees guide |
Dividends: the flat 15% and what it does to your cash plan
Under Article 11 Indian tax on a dividend paid to a Spanish resident who is the beneficial owner cannot exceed 15% of the gross amount. The treaty gives no reduced rate for a parent with a large stake, so a wholly owned subsidiary and a 5% minority investor are taxed at the same rate. Compare that with the domestic rate of about 20% plus surcharge and cess and the saving is real but modest. Because Spain exempts most of the dividend from its own corporate income tax for a qualifying holding, the Indian 15% is usually the only tax suffered on the cash, which makes it a cost to plan for rather than a credit to recover.
Two practical points follow. First, treaty relief is claimed at the moment of payment, not afterwards: the Indian company deducts tax at the treaty rate only if it holds the paperwork on the payment date. If it does not, it must deduct at the domestic rate and the Spanish parent can then recover the excess only through a refund claim, which is slow. Second, a dividend must come out of distributable profits after audit. A subsidiary that is in its first loss-making years will pay no dividend at all, so cash for a Spanish parent will normally come first through service fees, royalties or loan interest, each of which has its own rate and its own evidence requirements. See repatriating profits.
Interest, royalties and technical fees
Interest on a shareholder loan is limited to 15%, and the 0% rate does not extend to ordinary Spanish banks, so a loan from a Spanish group company is taxed at 15% under the treaty and also needs to satisfy the Reserve Bank's external commercial borrowing rules on lender, cost and use. Royalties and fees for technical services are both capped at 10%. The point to watch is characterisation. Indian tax law treats many cross-border services as fees for technical services even when no technology is transferred, and Spanish groups that recharge management time, IT support or engineering hours often discover that a payment they treated as a reimbursement is a taxable fee. The remedy is a written services agreement, a time or cost record, a mark-up supported by benchmarking and a clear statement of what was delivered. See transfer pricing.
For a brand licence the royalty has to be tied to a real licence. Spanish consumer groups that sell through Indian franchise or joint-venture arrangements commonly agree a percentage of sales; Indian officers will test that percentage against comparable licences and may disallow the part that exceeds it.
Permanent establishment under Article 5
The treaty follows the OECD pattern. A fixed place of business through which the enterprise carries on business is a permanent establishment, and the examples include a place of management, a branch, an office, a factory, a workshop and a warehouse. Two features matter more than the general definition.
- Construction, installation and assembly: a building site, construction or assembly project, or related supervisory activity, becomes a permanent establishment only if it continues for more than six months. That is shorter than the twelve months found in some older Indian treaties, so a Spanish contractor installing machinery, a wind or solar plant, a metro system or a transmission line needs to count calendar months carefully, including interruptions and connected phases.
- No separate services PE: the treaty does not contain a clause that turns services performed by employees in India for a given number of days into a permanent establishment. That does not make services free of Indian tax, because the payment may still be a fee for technical services taxed at 10%. But it narrows the PE risk for consultancies and engineering firms whose people visit India on short assignments.
- Dependent agents: a person who habitually concludes contracts, or habitually plays the principal role in concluding them, on the enterprise's behalf can create a permanent establishment. The MLI modifies the agency wording for both countries, and Indian tax officers have used it against group companies that negotiate in India for a foreign parent.
- Exclusions: a place used only for storage, display or delivery of goods, for stock held for processing by another enterprise, for purchasing or for collecting information, and any other preparatory or auxiliary activity, does not create a permanent establishment. A liaison office that stays inside that boundary is therefore low-risk; one that negotiates or signs becomes high-risk.
- Subsidiary: an Indian subsidiary is not in itself a permanent establishment of its Spanish parent. The risk arises when the subsidiary has no real independence, when the parent's staff run it day to day from Spain or from India, or when the subsidiary's premises are at the parent's disposal.
If a permanent establishment exists, Indian tax applies to the profits attributable to it at the higher rate for foreign companies, and the Spanish parent must file an Indian return. The cost of that is far greater than the cost of the earlier planning, so a site, secondment and agent review at the start of each project is worth the time.
Gains on shares: the 10% threshold and what Spain does with the gain
Article 14 is where this treaty differs most from the common template. Gains from the sale of shares of an Indian company may be taxed in India if the Spanish seller held at least 10% of the capital at any time in the period set out in the article; gains on holdings below that level are taxable only in Spain. Gains on shares deriving their principal value from Indian immovable property are taxable in India without a threshold. For the wholly owned subsidiary that most Spanish groups set up, the 10% test is plainly met, so India taxes the exit gain: under domestic law a long-term capital gain on unlisted shares held for more than 24 months bears tax of 12.5%, and a shorter holding is taxed as a short-term gain at the normal rate for a foreign company.
Spain then looks at the same gain. A Spanish company selling a qualifying holding generally benefits from the participation exemption, which, as reformed, exempts most of the gain where the seller held at least 5% (or an acquisition cost above EUR 20 million) for at least a year and the investee was subject to a comparable tax. Where the exemption applies, the Indian tax is a final cost; where it does not, Spain taxes the gain and gives a credit for the Indian tax up to the Spanish tax on that income. Because the Spanish conditions and exempt percentage have changed in recent years, confirm them with a Spanish adviser at the time of sale. See exit and restructuring.
How Spain gives relief
Spain relieves double taxation by the credit method. Indian tax paid on Indian-source income is credited against Spanish tax on that income, but never above the Spanish tax attributable to it, so any excess Indian tax is lost unless carried forward under Spanish rules. For dividends and gains from qualifying subsidiaries the participation exemption usually takes the income out of Spanish tax altogether, which means no credit is needed. For royalties, interest and fees, which Spain taxes as ordinary income, the credit is what prevents the same income being taxed twice. Keep the Indian withholding tax certificate, the Indian tax return where relevant and the bank evidence of payment, because Spain will ask for them.
Anti-abuse rules: limitation of benefits, the principal purpose test and GAAR
The 2012 Protocol added a limitation of benefits article that denies treaty benefits to arrangements whose main purpose is to obtain them. Since 1 January 2022, when the MLI took effect for Spain, the principal purpose test also applies: a benefit is denied if obtaining it was one of the principal purposes of an arrangement and granting it would be contrary to the object and purpose of the treaty. India's General Anti-Avoidance Rule sits alongside both and applies to arrangements with a main purpose of obtaining a tax benefit above its threshold.
In practice, a Spanish group that holds its Indian subsidiary directly from a Spanish operating or holding company with real management, people and decision-making in Spain faces little risk. The risk rises where an intermediate Spanish company is inserted only to access the treaty, for example by a non-EU group, or where the Spanish company has no employees, no premises and no board activity. Document why the Spanish entity holds the Indian shares, who decides, and where the people are. See Spanish parent obligations.
How to claim treaty rates, step by step
- The Spanish company obtains a tax residency certificate (certificado de residencia fiscal) from the Agencia Tributaria for the year of payment.
- It gives the Indian payer Form 41 (earlier Form 10F), the certificate, a declaration that it is the beneficial owner and a declaration that it has no permanent establishment in India.
- For royalties and technical fees at 10%, it also gives a short note referring to the most-favoured-nation clause and Notification 33/2024.
- The Indian payer deducts Withholding Tax at the treaty rate under Section 393 of the Income-tax Act, 2025, and deposits it by the 7th of the following month.
- For the remittance, the payer files Form 145 (earlier 15CA) and, where the bank requires it, Form 146 (earlier 15CB) from a chartered accountant.
- The payer issues the withholding certificate, which the Spanish company keeps for its Spanish return and its credit claim.
The Spanish side in brief
Spain taxes resident companies on worldwide income at the general corporate income tax rate, which has been 25%, and the foreign-source dividends and gains discussed above are largely exempt. Spain also has controlled foreign company rules, rules on documentation of related-party transactions and the EU minimum tax regime for large groups. None of these changes the Indian figures on this page, but they decide the net result. Your Spanish adviser, not this guide, should confirm the position.
Disputes, information exchange and the MFN clause
The treaty provides for a mutual agreement procedure under which the competent authorities of the two countries try to resolve disputes about its application, and for exchange of information and assistance in collection. Time limits for presenting a case are set by the treaty and by each country's domestic rules, so take advice early after any notice of demand. The most-favoured-nation clause deserves a final note: it depends on a lower rate being agreed with another OECD member after a given date, and an Indian officer may query it. Keep the evidence file and watch for later changes in the other treaty, because the rate that the clause imports can follow.
Official sources
Check the rules at the primary sources: Income Tax Department (India), Reserve Bank of India, Ministry of Corporate Affairs, Agencia Tributaria (Spain), Spanish Ministry of Economy, Trade and Business and the Ministry of External Affairs (India).
Frequently asked questions
Is there a tax treaty between India and Spain?
Yes. It was signed on 8 February 1993 and entered into force on 12 January 1995, was amended by a 2012 Protocol, and is modified by the Multilateral Instrument.
What is the Indian withholding tax on dividends paid to a Spanish parent?
15% of the gross amount under the treaty, flat, if the Spanish company is the beneficial owner and holds the paperwork on the payment date. The domestic rate is about 20% plus surcharge and cess.
Why is the royalty and technical fee rate 10% when the treaty text says otherwise?
The 10% comes through the most-favoured-nation clause, which imports the lower India-Germany rate. India gave effect to it by Notification 33/2024, applying from assessment year 2024-25. Keep a copy of the notification.
When does a building or installation site become a permanent establishment?
After more than six months. The treaty has no separate clause that turns services by employees into a permanent establishment after a set number of days.
Are gains on Indian shares taxable in India for a Spanish seller?
If the seller held at least 10%, India may tax the gain, at 12.5% for unlisted shares held more than 24 months. For holdings below 10% the residual rule leaves the gain taxable only in Spain.
Does Spain tax the dividend again?
Usually not for a qualifying holding, because the Spanish participation exemption removes most of the dividend from Spanish tax. Where it does not apply, Spain gives a credit for Indian tax up to the Spanish tax on that income.
What documents prove treaty eligibility?
A tax residency certificate from the Agencia Tributaria, Form 41, a beneficial ownership declaration and a no-PE declaration, plus a note on the MFN clause where the 10% rate is claimed.
Does the principal purpose test affect Spanish groups?
Yes. It has applied to Spain since 1 January 2022. A Spanish company with real people and decisions is at low risk; a pass-through company with no substance is exposed.
Does the treaty remove the need for any Indian approval?
No. It deals only with tax. India's foreign investment rules, RBI reporting and sector caps apply separately.
Can I get relief if the wrong rate was deducted?
You can claim a refund through the Indian return, but it is slow. It is far easier to hold the documents before the payment date.
Related guides
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Last updated 2 November 2026. General information only, not legal or tax advice. Indian and Spanish rules change often; confirm current requirements before acting.