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 an ETVE 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 ETVE company to exercise in interests in companies in Spain in order to achieve the best possible dividend.
After the Directive of 29 October 2003 of the Spanish Ministry of Finance, it is not necessary that the human and material resources reach a certain minimum threshold, but the ETVE 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.
Registered securities
The investments in the assets of an ETVE Company must be by name. This means that the securities of the ETVE company must be denominated by a certain securitized name, that is the owner.
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.
Corporate purpose
An ETVE company must be directed to a permanent, not just temporary, business to manage foreign company investments.
An ETVE company may not principally be directed to the pure administration of movables or real estates.
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.
Tax privileges of an ETVE Company
In principle, an ETVE Company 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, an ETVE 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 ETVE company of shares in non-resident companies in Spain. The tax treatment of ETVEs is distinguished in that the income from shares in non-resident companies in Spain is considered to be free from taxation in Spain. However, this income must meet the requirements elaborated in point 2.5
- 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 ETVE company to its shareholders and also the distributions resulting from the dispute of the ETVE 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 ETVE shareholders that have obtained the distributions of an ETVE company
Prerequisites for ETVE-investment of income from shares in non-resident companies in Spain
- The corporate purpose of the ETVE 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, as mentioned above, participate in the ETVE 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 tax assessment.
Alexander Rabes & Karl H. Lincke
For further information regarding the requirements of Spanish holding companies,
