Entities Holding Foreign Security (ETVE), also known as Spanish holding companies, are those businesses that benefit from a special tax regime which consists of tax exemption with respect to any dividends or capital gains that they may obtain from stocks and shareholdings in foreign businesses. As such, it deals with businesses with a large amount of foreign investments, which, by channelling their capital through a holding company established in Spain, develop their international investments without being taxed on them.
The tax regime of ETVEs has been regulated in Spain since 1995, and was created with the objective of eliminating international double taxation on holdings in non-residential entities that undertake business activity, thus competing with similar tax regimes implemented in other EU countries, such as Holland or Luxembourg.
This tax regime is currently regulated by the Corporate Tax Law 27/2014, of 27 November 2014, and implemented by Royal Decree 634/2015, of 10 July 2015. Accordingly, in order to benefit from the special tax regime, entities must comply with the following requisites:
- Firstly, in terms of their constitution, ETVEs can adopt various legal forms, with some exceptions, although it is more common that they opt for a commercial form, specifically, a private limited company. For this, an initial share capital contribution of €3,000 is enough, proven by similar representative values of the funds of non-resident entities in Spain territory to said social capital.
- In respect to the social purpose of this type of entity, it must include the management and administration of residents’ equity through the organization of personal and material resources.
- Furthermore, the shareholdings of non-resident entities must be active, which means to say that it cannot be merely instrumental and opaque only comprised of patrimonial elements. Rather it must possess an organisation of its own personnel and material resources in order to carry out management activities and administration of shares. This requisite would be accredited if any member of the administrative body is responsible for the direction and management of the shares.
- In any case, the values or representative holdings of the participation in the capital of the ETVE must be nominative, that is to say, all identifiable data of the owner/stakeholder must be included.
- Additionally, to qualify for the ETVE tax regime, it is necessary to communicate with the Spanish Tax Authorities. Thus, the tax regime will apply to the tax period that ends after said communication and to the successive periods that conclude afterwards, and before the cancellation notice of said tax regime.
It should be noted that, although after the recent reform of the Corporate Tax Law, any business established in Spain whose participation in another business (whether it be Spanish or foreign) is at least 5% or of a value higher than 20 million EUR, can also benefit from the tax regime´s exemption with regards to dividends and capital gains obtained from said participation, the fact is that ETVE continue to present advantages under the tax regime.
In particular, the Corporate Tax Law foresees that shares acquired by ETVEs prior to the commencement of the financial year on 1st January 2015, that do not comply with the participation requirements of the 5% minimum previously stated, can benefit from a special tax regime if the value of the acquisition was greater than 6 million Euros, reducing the minimum investment of 20 million Euros that the general tax regime demands.
Equally, the special tax regime of the ETVE presents the great advantage of Income Tax exemption on Non-Residents (IRNR), in the case of profit-sharing or gains by divestment, obtained by foreign partners, which allows the foreign investor to invest and divest in the ETVE without worrying about the taxation.
In conclusion, ETVEs offer an advantageous regime for those businesses that wish to utilize Spain as a foreign investment platform, and whose main feature is fiscal exemption with regards to dividends and capital gains obtained by shareholdings in foreign companies.
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