Spanish Holding Company (ETVE)

ETVE Rules and Regulations

The ETVE may apply for a full participation exemption on qualifying investment income coming from dividends or capital gains according to certain rules, such as:

• Income earned by the non-resident entities, from which dividends and capital gains are paid, is derived from business activities conducted outside Spain. The company’s principal activity should not be the management of movable or immovable property (Article 116.1 LIS).
• The ETVE must have a Board of Directors meeting regularly and its corporate purpose must include managing and administering securities representing the equity of entities not resident in Spanish territory, with a minimum holding of 5% in their equity, or when the acquisition value of the holding exceeds 6 million euros (article 116.1 LIS). The ETVE must have the corresponding organisation of material and personal resources (see definition contained in the reply issued by the Directorate General for Taxation, in binding tax consultation number 120/03.
• The securities representing the participation in the ETVE must be registered (article 116.1 LIS).
• The option for the scheme must be communicated to the Ministry of Finance. It will be applied in the tax period ending after the communication, and in the following periods, unless waived (article 119 LIS).
• The non-resident company must be subject to, and not exempt from, a tax system that is similar to Spain’s corporate tax system. This requirement will be considered as fulfilled whenever the foreign company is resident in a country that has signed a double tax treaty with Spain and must include an information exchange clause. The amount of the exempt income and the taxes paid abroad corresponding to it must be mentioned in the notes to the ETVE’s annual accounts (article 118.3 LIS).
• The non-resident entity must not reside in a country or territory identified by the Spanish tax authorities as a tax haven and dividend distribution cannot be made to tax haven
• For capital gains tax purposes, the seller and the purchaser must be unrelated parties if the purchaser is a Spanish entity.
• There must be a minimum one-year holding period to apply for the exemption
• There are other requirements depending on the investment, which should be reviewed with our tax & legal team.
• Latin America: The use of Spanish holding companies is extremely manageable in relation to Latin American countries due to the Spanish extensive network of double tax treaties and bilateral investment treaties in the region.

Spanish Holding Company ETVE Considerations

• The financial costs associated with the acquisition of participations are in principle deductible for corporate tax purposes.
• Stamp Duty is usually 1%, payable on the issue of share capital on entities established in Spain, which is exempted in paper for paper operations.
• The ETVE can hold shares in other entities resident in Spain, with no limits in terms of participation. However, there is a limit of a 15% holding of assets located in Spain when selling the shares.
• If the participation by the ETVE in the non-resident entity was valued according to the rules applicable to the special tax regime for mergers, spin-offs, exchanges of shares and in-kind contributions and payment of direct taxes in Spain was deferred, the exemption only applies to the positive difference between the transmission value and the market value when the participation was acquired by the ETVE. The remaining of the income obtained in the transfer will be included in the tax base.
• If foreign source dividends are exempt from tax in Spain, the ETVE cannot include in the taxable base the depreciation of the participation corresponding to those dividends.
• If the ETVE has losses in the transmission of a participation in a foreign company, such losses will be reduced by the amount of exempt gains obtained by an entity forming part of the same group of companies of the ETVE that transmitted the participation to the ETVE.