Since its introduction in 1995, Spain has implemented a holding company tax regime that mirrors key features of similar regimes in northern European countries. This regime is tax-efficient and attractive to foreign investors, allowing them to benefit from Spain’s extensive network of international double-taxation treaties.
The Entidad de Tenencia de Valores Extranjeros (ETVE) is a type of company primarily aimed at managing and administering shares in non-resident companies outside Spain.
The ETVE regime is regulated by Articles 107 and 108 of Law 27/2014 of the Corporate Tax Law. It essentially facilitates the repatriation of dividends or capital gains from operating companies in third countries to their final recipient through Spain with minimal taxation.
From a corporate law standpoint, companies wishing to adopt the ETVE regime only need to ensure their corporate purpose aligns with the tax regime’s objectives and meet the criteria detailed below.
What Are the Requirements for the ETVE Regime?
According to Law 27/2014, an ETVE must adhere to the special tax regime outlined in Article 107 and meet the following requirements:
- The corporate purpose of the company must include the management and administration of shares in non-resident entities
- It must have adequate material and personnel resources to manage these holdings, typically demonstrated by the involvement of a manager or board member in the management of the shares
- Shares or securities in the ETVE must be nominative
- It cannot be an Economic Interest Grouping (Agrupación de Interés Económico) or a Temporary Business Union (Unión Temporal de Empresas)
- It must not be classified as an asset-holding entity under Article 5 of Law 27/2014
The decision to adopt the ETVE regime must be communicated to the Ministry of Finance. It will be effective for the tax period following the notification and will continue for subsequent periods until a formal withdrawal.
Tax Benefits of ETVEs
Tax Benefits for ETVE Shareholders
Income derived from dividends or the sale of shares held by an ETVE in operational entities outside Spain (provided the shareholding is at least 5% and maintained for over a year) can be distributed to non-resident shareholders in Spain completely free from withholding tax. The same applies to income from operating permanent establishments outside Spain, as this income is considered earned outside Spanish territory, justifying the exemption from withholding.
Income from the sale of the ETVE itself by non-resident shareholders is also exempt from withholding tax, provided that the increase in the ETVE’s value corresponds to increases in its reserves or to value increases from operational entities where it holds at least a 5% stake for more than a year.
Other Benefits Associated with ETVEs
As mentioned, the ETVE is a standard commercial entity subject to taxation in Spain under the general regime, allowing it to benefit from Spain’s network of double taxation treaties with third countries, particularly in Latin America.
For example, a UK investor who wishes to invest in Colombia with a 5% stake would face a 15% withholding tax on dividends received from their Colombian subsidiary. However, if the investment is through an ETVE, the withholding tax would be only 5% due to the double taxation treaty between Spain and Colombia, plus a 1.25% tax at the ETVE level, resulting in significantly lower overall taxation.
This simple example illustrates how using an ETVE and leveraging Spain’s treaty network can be highly advantageous for foreign investors regarding tax efficiency. These tax benefits and the legal certainty of the country have made Spain an attractive jurisdiction for foreign investment holding, especially towards Latin America.
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