A Spanish parent can take money from an Indian subsidiary through dividends, service fees, royalties, loan interest and repayment, or a capital reduction or buyback. Each route has a different Indian tax cost, different documents and a different Spanish treatment. Dividends bear 15% withholding under the treaty and are mostly exempt in Spain for a qualifying holding, so the Indian tax is the final cost. Royalties and technical fees bear 10% through the most-favoured-nation clause, but Indian transfer pricing and the deductibility test decide how much the subsidiary may pay. Interest bears 15%. A dividend needs profit; the other routes need a real service, licence or loan behind them. Plan the mix before the first payment, and keep the evidence the Indian bank will ask for.
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Key facts
| Dividends | 15% treaty withholding; paid from distributable profit after audit; mostly exempt in Spain for a qualifying holding |
|---|---|
| Technical and management fees | 10% treaty rate through the MFN clause; needs a contract, delivery evidence and arm's length pricing |
| Royalties | 10%; needs a licence; percentage tested against comparables |
| Interest | 15%; subject to ECB rules and the interest limitation rule |
| Capital reduction or buyback | Special rules; taxed as a gain or as a deemed dividend depending on the route |
| Documents | Tax residency certificate, Form 41, Forms 145 and 146 |
| Payer deducts | Withholding Tax under Section 393 by the 7th of the next month |
| Spanish relief | Participation exemption for dividends; credit for tax on fees, royalties and interest |
The five routes compared
| Route | Indian cost | Condition in India | Spanish treatment | Typical trap |
|---|---|---|---|---|
| Dividend | 15% withholding (treaty); no tax in the company on distribution under current law | Profit after audit; board and shareholder approval | Mostly exempt for a qualifying holding; credit otherwise | No profit in the first years |
| Management and technical service fee | 10% withholding (treaty via MFN); GST under reverse charge | Actual services, contract, evidence, arm's length mark-up | Ordinary income; credit for Indian tax | Disallowed as shareholder activity |
| Royalty | 10% withholding; GST may apply | Licence agreement; use of the right in India; benchmarked rate | Ordinary income; credit | Rate above comparables |
| Interest and loan repayment | 15% withholding on interest | ECB rules; interest limitation; registered loan | Ordinary income; credit | Loan treated as equity or not registered |
| Buyback or capital reduction | Taxed under special provisions | Company law process and FEMA pricing | Participation exemption may apply; confirm | Pricing above fair value |
Dividends in practice
A dividend can be declared only from distributable profits after the accounts are audited and approved, so a subsidiary in its early loss-making years cannot pay one. Once it can, the Indian company deducts tax at the treaty rate of 15% if it holds the tax residency certificate, Form 41, the beneficial ownership declaration and the no-permanent-establishment declaration on the payment date. It reports the payment on Form 145 and, where the bank asks, Form 146. The Spanish parent then treats the dividend under its participation exemption where the holding qualifies, so the Indian 15% is usually the only tax. See the treaty guide.
Fees and royalties: what makes them safe
Service fees and royalties give the Spanish parent cash before the subsidiary makes a profit, which makes them attractive, and they are also the route Indian officers examine most closely. Four things keep them safe. First, a written agreement that describes the service or the licence. Second, evidence that the service was needed and delivered, such as time records, reports, deliverables and emails. Third, a price benchmarked against third-party comparables, with a documented mark-up. Fourth, correct tax treatment: Withholding Tax at the treaty rate, goods and services tax under reverse charge where applicable, and an entry in the transfer pricing file. Fees for services that merely protect the parent's investment, such as shareholder oversight, are treated as the parent's own cost and disallowed. See transfer pricing.
Loans and interest
Interest on an external commercial borrowing bears 15% withholding, and the Indian company may deduct it only within the interest limitation rule and the arm's length test. The loan must be registered, and each interest and principal payment needs the documents the bank asks for. Because interest is deductible and dividends are not, loans can be attractive, but they bring a repayment obligation and the Spanish parent should confirm the Spanish treatment of the interest income and the transfer pricing documentation for the loan. See funding and FEMA.
The mechanics of each payment
- Check that the payment is permitted and the contract exists.
- Obtain the Spanish tax residency certificate, Form 41 and the declarations.
- Calculate Withholding Tax at the treaty rate and any goods and services tax.
- File Form 145 and, if the bank needs it, obtain Form 146 from a Chartered Accountant.
- The bank remits the net amount and the company deposits the tax by the 7th of the following month.
- Issue the withholding certificate and file the quarterly return.
- The Spanish parent records the income and claims the credit or exemption.
Building the right mix over time
| Phase | Likely mix | Reason |
|---|---|---|
| Years 1 to 2 | Service fees and royalties; loan interest if debt-funded | The subsidiary has little or no profit |
| Years 3 to 5 | Growing dividends alongside fees | Distributable profit emerges |
| Mature | Dividends as the main route; fees at a stable benchmarked level | Lowest compliance burden and exempt in Spain |
| Exit or restructuring | Share sale, buyback or capital reduction | See the exit guide |
Mistakes that cost money
- Deducting at the domestic rate because the residency certificate was not on file.
- Paying fees without a contract or evidence and having them disallowed.
- Calling a royalty a service fee, or the reverse, and getting the wrong treaty rate.
- Forgetting goods and services tax on reverse charge.
- Paying a dividend before the accounts were approved.
- Ignoring the Spanish parent's own documentation on the transaction.
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
How can a Spanish parent take money out of an Indian subsidiary?
Through dividends, service fees, royalties, loan interest and repayment, or a buyback or capital reduction. Each has a different tax and documentation profile.
What is the withholding tax on dividends to Spain?
15% under the treaty, if the documents are in place on the payment date.
What is the rate on technical fees and royalties?
10%, through the most-favoured-nation clause and Notification 33/2024.
Is a dividend taxed again in Spain?
Usually not for a qualifying holding, because of the participation exemption. Confirm the conditions with a Spanish adviser.
Can the subsidiary pay a management fee from day one?
Yes if there is a contract and real services at an arm's length price. Indian officers will test it.
Why are shareholder costs disallowed?
Services that only protect the parent's investment are the parent's own cost, not a service to the subsidiary.
Does the fee attract goods and services tax?
Often yes, under reverse charge for services received from abroad. The Indian company pays it and may claim credit.
How is interest taxed?
15% withholding under the treaty, with deductibility subject to the interest limitation rule and transfer pricing.
What documents does the bank need?
Forms 145 and 146, the contract, invoices, the residency certificate and sometimes proof of tax paid.
Related guides
India-Spain Double Taxation Agreement Explained: 15% Dividends, 10% Royalties and Technical Fees, the 6-Month Site PE, the 10% Share-Gain Rule and the MLI
The India-Spain tax treaty explained for a Spanish parent with India as source state and Spain as residence state: dividend, interest, royalty and technical fee rates, permanent establishment, capital gains on Indian shares, credit and participation exemption, limitation of benefits, the MLI principal purpose test and how to claim relief.
Read the guide →Transfer Pricing for an Indian Subsidiary of a Spanish Group: Arm's Length Rules, Form 3CEB, Local File, Services, Royalties and Loans, and Spain's Own Documentation
How India and Spain test related-party prices: methods, thresholds, Form 3CEB, the master and local files, intra-group services and royalties, loans, safe harbours, advance pricing agreements, audits and the match between Indian and Spanish files.
Read the guide →Funding an Indian Subsidiary from Spain: Share Capital, Shareholder Loans, Fair Value Pricing Rules, FC-GPR, FC-TRS and the Annual FLA Return
How a Spanish parent can put money into an Indian company: equity under the Automatic Route, convertible instruments, external commercial borrowing, intra-group financing, the FEMA pricing rule, the 60-day and 30-day deadlines, the FLA return and the Spanish declarations that match.
Read the guide →Exiting an Indian Subsidiary: Sale of Shares, Buyback, Voluntary Liquidation, Strike-Off and Merger, with the 10% Treaty Rule, FEMA Pricing and Spanish Declarations
How a Spanish parent can sell, wind up or restructure an Indian subsidiary: the tax on share gains under the India-Spain treaty, FEMA pricing, buyback and capital reduction, liquidation and strike-off, mergers and conversions, repatriating the proceeds and the Spanish filings that close the loop.
Read the guide →Sources
Last updated 2 November 2026. General information only, not legal or tax advice. Indian and Spanish rules change often; confirm current requirements before acting.