According to the German online statistics portal, Statista GmbH, Spain ranks fourteenth in the list of the world’s largest economies, offering one of the most attractive domestic markets in Europe and being the fifth largest economy in the EU.
In addition, it has a long list of double taxation treaties, established especially with Latin American countries to greatly benefit both corporate and private clients. Among these are ETVEs, a profitable option for large entrepreneurs. Here we tell you why.
What is an ETVE?
The Entidades de Tenencia de Valor Extranjero (ETVE), also known as Spanish Holding Companies, are a special tax regime that works as a great mechanism for the purpose of channeling investments in Spain, especially – as its name says – in foreign securities.
In simpler words, it is a legal structure that seeks to promote investment in Spain based on tax incentives.
What incentives does it offer?
The exemption with respect to dividends or capital gains obtained by holding shares or participations in foreign companies.
That is to say, these are companies that have a great capacity for foreign investors, which, by channeling their capital through a Spanish holding company, can develop international investments without having to pay tax on the income from them. It means an opportunity for investors to generate profits without having to assign part of them.
The tax regime for ETVEs has been regulated in Spain since 1995, and was created with the aim of eliminating international double taxation with respect to holdings in non-resident entities carrying out business activities, thus competing with similar regimes implemented in other European Union countries, such as the Netherlands or Luxembourg.
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Advantages of ETVE investments
The ETVE regime offers several outstanding advantages.
The first one, which we have been mentioning from the beginning, is that the dividends obtained by the entity are not subject to taxation in Spain. They escape regular taxes, of course, provided that the percentage of direct or indirect participation in the capital of the non-resident subsidiary entity is at least 5%, or alternatively, that the value of the acquisition of the participation exceeds 20 million euros, that the participation in the subsidiary or holding company, 20 million, that the participation in the non-resident subsidiary or holding company has been maintained for at least one year, or that the non-resident company has been subject to a foreign tax of an identical or analogous nature to the Spanish corporate income tax at a nominal rate of at least 10%, that the participation in the non-resident subsidiary or holding company has been maintained for at least one year, or that the non-resident subsidiary or holding company has been subject to a foreign tax of an identical or analogous nature to the Spanish corporate income tax at a nominal rate of at least 10%; and the nonresident subsidiary has been subject to a foreign tax identical or analogous to Spanish corporate income tax at a nominal rate of at least 10%. This essential requirement will be understood to be fulfilled when the investee is resident in a country with which Spain has signed an agreement to avoid double international taxation and which contains an information exchange clause.
In this link we leave you the list of countries with which Spain has signed double taxation treaties: Click here.
Apart from what we have already mentioned, these are other advantages that foreign companies can take advantage of if they adopt this tax regime:
National withholding tax exemption.
Deductions for financial costs.
Deductions for capital losses.
thin capitalization rules in general quite liberal. (These are a series of anti-avoidance rulings aimed at preventing Spanish subsidiaries of multinational groups from financing themselves with loans granted by non-resident entities of the same group (holding company) in order to reduce their profits through increased interest.
However, they also have their disadvantages.
Disadvantages of ETVE investments
There are no exemptions for capital gains from Spanish participations.
There is a capital tax levied at 1%.
Relatively high corporate income tax (around 30%).
Application of CFC rules for the control of foreign companies and international tax transparency.
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Requirements to enjoy ETVE benefits
The ETVE regime is currently regulated by Law 27/2014, of November 27, on Corporate Income Tax, and its implementing regulations, Royal Decree 634/2015, of July 10. It stipulates the requirements that business entities must meet to benefit from the special tax regime, which are:
Entities whose corporate purpose includes the management and administration of securities of non-resident entities. It is not necessary that the corporate purpose be exclusive or principal.
These entities must have an organization of material and personal resources that allows the development of their activity. It is understood that this requirement is met when the ETVE has at least one employee. Even if such employee simultaneously performs other types of work in other companies of the group.
The securities of non-resident entities must be nominative. The data of the partners must appear in the partners’ record book. Therefore, if a corporation wishes to benefit from this regime, it must issue registered shares (without the possibility of its capital being made up of bearer shares).
The percentage of participation in each company by the ETVE must be at least 5%. If 5% is not reached but the acquisition value is higher than 20,000,000.00 (€), the requirement is deemed to be fulfilled.
The participation in the entity in question must be maintained for at least one year without interruption.
The investee company must carry out a commercial activity. It must also be subject to a foreign tax of a similar nature to the Spanish Corporate Income Tax.
The capital gains obtained by the ETVE will not be subject to taxation in Spain provided that the requirements mentioned for dividends are met, but in this case it will be necessary to analyze that the international tax transparency does not apply and that the subsidiaries are not considered patrimonial entities, because in both cases the exemption would not be applicable. However, if the subsidiaries are operating companies carrying out a business activity, the capital gain will in principle not be subject to taxation.
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For more information
If this information has caught your attention, you have a multinational company, and you wish to establish a subsidiary in Spain, count on us to take the next step.
At TAS Consulting we specialize in the financial and foreign investment area. We provide our clients with quality legal advice that allows them to select, structure and execute their foreign investment projects, taking advantage of the benefits that Spain offers as an investment channeling country in the world.
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