De Micco & Friends establishes and manages companies and businesses in all Spain. One of the most tax efficient vehicles in Europe is the Spanish holding (aka ETVE).
The benefits of a Spanish holding company
Likewise, the Spanish holding company can distribute dividends without any Spanish source taxation, provided that the recipient of those dividends is not blacklisted in Spain. Consequently, structuring cross-border investments through Spanish holding companies should not trigger any Spanish tax leakage if all these conditions are met. Spanish holdings are regulated by numerous legal standards on the taxation of companies.
The purpose of a Spanish holding is to avoid the double taxation of income of Spanish companies from certain foreign company holdings, arising from the fact that the income of foreign companies is taxed in their country of origin and then later taxed again as a result of the profit/dividend distribution in Spain. A Spanish holding is the result of investments of non-residences of Spain working in Spanish companies.
Learn more about the requirements needed in order to participate in this particular taxation below.
The aim of the special tax status of Spanih holdings
The aim of this special tax position is economic promotion by means of tax relief. As a result of this privilege, the expansion of Spanish companies abroad and consequently their growth in all Europe is to be promoted. Furthermore, Spain aims to become more attractive as an investment location for foreign companies. It is also supported by some legal benefits enjoyed by foreign companies, in the form of the establishment of a limited company.
The Legal basics of Spanish holdings
A Spanish holding is not a Spanish public company form, but a beneficiary taxation form by a privileged predisposition of certain revenue. The usual corporate form of a Spanish holding is a public limited company (S.A., which corresponds to a corporation) or a limited liability company (S.R.L. or S.L., which corresponds to a limited company).
A Spanish company, which meets the requirements listed below, can by simply displaying financial authority, receive privileged taxation on certain income according to the ET. This form of investment is then applied by the Spanish holding company for the following tax period until deselected by the Spanish holding at the following assessment.
A Spanish holding is a favored form of taxation
The legal basis of a Spanish holding company is Chapter 14 of the Corporate Income Tax Law (short “LIS”. The tax treatment of a Spanish holding company is governed by Chapter 14, Articles 116-119 of the LIS.
Article 116 para. 1 of the LIS grants all Spanish companies the right of assessment as a Spanish holding if their purpose is the management of shares which are not found in Spanish-based companies and the company, for this purpose, is equipped with the necessary human and material resources.
The Spanish holding model conforms to international law
The advantage of choosing this Spanish system compared to other foreign systems is that it is already recognized internationally, and no international repression persists. Therefore, a number of countries and institutions such as the United States and the European Court have classified the Spanish holding model as legally compliant!
The Requirements of a Spanish holding (ETVE)
1. Personal and Material resources
A prerequisite to eligibility of investment as per ETVE rules is that there is no purely passive investment company. This is achieved by a Spanish holding company being equipped with the appropriate human and material resources, to ensure that active management of investments is possible. Fundamentally, an active management activity exists if it is possible for the Spanish holding to exercise in interests in companies in Spain in order to achieve the best possible dividend.
It is not necessary that the human and material resources reach a certain minimum threshold, but the Spanish holding company may not, as an investment company, be an empty shell or a mere custodian of assets. This requirement must be fulfilled. if a partner is involved in the management of the investment.
2. Registered securities
The investments in the assets of Spanish holding Company must be by name. This means that the securities of the Spanish holding must be denominated by a certain securitized name, that is the owner.
3. Communication to the treasury
The choice of the form of assessment, according to ETVE regulations, shall be communicated to the Spanish Ministry of Finance. The assessment form is used in the following taxable period.
4. Corporate purpose
A Spanish holding company must be directed to a permanent, not just temporary, business to manage foreign company investments.
A Spanish holding company may not principally be directed to the pure administration of movables or real estates.
5. No interest grouping
An ETVE company cannot be a Spanish or European Interest Group.
If an ETVE company no longer meets one of these or any of the following conditions, the company loses the right to choose this form of investment and continue its use. At the request of the tax authorities, an ETVE company is obliged to prove that the conditions are being met.
The tax privileges of a Spanish holding
In principle, a Spanish holding is used in accordance with other Spanish companies regarding taxation purposes. The company is, therefore, not subject to the regular commercial, corporate and value added tax. However, as already indicated, a Spanish holding company is privileged by the assessment of the tax.
With regards to corporate tax, it is distinguished as follows:
- Income from activities other than the participation of non-resident companies in Spain. The profits from their own original employment in the company are not privileged according to the ETVE predisposition. These profits are subject to the general Spanish corporate tax rate of 25%.
- Exemption from income of the Spanish holding company of shares in non-resident companies in Spain. The tax treatment of Spanish holdings is distinguished in that the income from shares in non-resident companies in Spain is considered to be free from taxation in Spain!
- Among these privileges falls the profit and divided payments of those companies which are not based in Spain, profits resulting from the sale of these investments, which accrue dividends from the Spanish holding company to its shareholders and also the distributions resulting from the dispute of the Spanish holding company, in so far as the shareholders do not come from a so-called tax haven.
- The fiction is applied to shareholders who are not residents in Spain or Spanish holding shareholders that have obtained the distributions of the Spanish holding company.
The prerequisites for Holding-investment of income from shares in non-resident companies in Spain
- The corporate purpose of the Spanish holding company must be the direct administration of the proceeds of shares to non-Spanish based companies.
- The investments in these companies which are non- residents of Spain must participate in the Spanish holding company itself, meaning the securities of the non-resident companies of Spain must be denominated a certain securitized name, that being of the owner.
- The participation rate in the individual companies must amount to at least 5% or exceed a cost of six million euros and be held for a minimum duration of one year before the first distribution is to be supplied to the ETVE-assessment.
- The income of the none Spanish-based company must be subject to taxation in its country of origin, according to the Spanish tax laws. It is not required that the tax burdens be the same. This requirement is considered fulfilled if the income comes from a country with which Spain has a double taxation agreement. Generally, however, incomes from companies which have their headquarters in so called tax havens are excluded.
- The income of non-Spanish based companies, where the distribution is to be carried out, must come from their own operations of the companies. The condition is deemed as having been fulfilled if 85% of the proceeds originate from its own operations. Such operations are considered to be the wholesale supply services which occur outside of Spain and certain financial services and also in the management of company investments, which in turn qualify for the ETVE Spanish holdings tax assessment.
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