CMS Expert Guide to Holding Company Regimes in Spain

Spanish tax law provides and regulates a special regime for ‘Foreign-Securities Holding Companies’, known in Spain as “entidades de tenencia de valores extraneros” (“ETVE”). The primary intention of the ETVE regime is to allow overseas capital invested in an ETVE to be ‘tax-free’ on an investor’s entry and exit.

• A 95% exemption from corporation tax for dividends received by and capital gains arising to the ETVE from its shareholdings in non-resident (and resident) entities. Certain requirements must be met in order to obtain the exemption, which is known as the “participation exemption” or “PEX” regime.
• Profits distributed to non-resident holders of an ETVE out of ‘exempt income’ (i.e. income received from overseas subsidiaries) will not be taxable (or subject to withholding tax) in Spain given that such profits will not be deemed to have been obtained in Spanish territory (subject to certain anti-abuse rules).
• Capital gains arising from a sale or transfer of shares in the ETVE by non-resident shareholders will not be taxable in Spain provided that the gain is related to non-Spanish source income (i.e. non-distributed reserves of the ETVE are related to overseas investments).
• The requirements for an ETVE to benefit from the dividends and capital gains exemptions available under the PEX regime in relation to non-resident subsidiaries are:
• a minimum capital or equity stake (which may be direct or indirect) of 5%;
• a minimum holding period of one full year prior to the date on which the distributed profit can be claimed. This holding requirement can also be met after the dividend distribution; and 
• that the foreign subsidiary is subject to and not exempt from corporate income tax at a minimum nominal rate of 10%.
• The ability to benefit from Spain’s wide network of double tax treaties, given that an ETVE must be tax resident in Spain..

There are no requirements for an investor to be of a certain legal form in order to invest in an ETVE.

In order to benefit from the PEX regime, certain minimum shareholding and holding period requirements must be met. These are set out above.

The ETVE must hold shares in non-resident companies (in order to comply with the corporate purpose requirement, set out in Activity Requirements).

The corporate purpose of the ETVE must include “management and administration of shareholdings in non-resident entities”, but may also include other activities. ETVEs must have appropriate resources of their own for the management and administration of the shares held.

The option to apply the regime must be communicated to the Spanish tax authorities – although formal authorisation does not need to be obtained.

The shares in the ETVE must bear the full identification details of the holder.

Spanish Corporate Income Tax Law provides for a PEX regime, which is generally applicable to all Spanish tax resident entities. According to this regime income derived from dividends and capital gains on shares disposal can benefit from a 95% exemption (leading to an effective tax rate of 1.25%).