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10.1. Holding Regimes

Participation Exemption

For a description of the Spanish participation exemption regime, please see Sec. 6.6.

Foreign Portfolio Holding Company Regime

The Spanish Corporate Income Tax Law provides for a very convenient regime for companies holding foreign securities (article 116 of the Corporate Income Tax Law, Entidades de Tenencia de Valores Extranjeros, hereinafter ETVEs). The regime allows Spain to compete with other similar regimes within the European Union (such as Denmark or the Netherlands) but complying with the spirit of both the OECD and European Union rules on fair tax competition.

The ETVE is a company whose purpose “includes” the management of participations in non-resident companies, provided that the shareholding is, directly or indirectly, at least 5% of the subsidiary.

Taxation of the ETVE

As a matter of fact, the treatment of foreign income of an ETVE is no different from that of a normal Spanish resident company that is eligible for the participation exemption regime. If the ETVE and the foreign subsidiaries meet the requirements set out in article 21 of the Corporate Income Tax Law, the foreign dividends and capital gains are exempt from tax to the extent of 95% of their gross amount.

Income other than foreign dividends and capital gains is taxed in Spain under the standard rate (25%).

Taxation of the ETVE Shareholders upon Distribution of Profits

The most interesting aspect of the ETVE is that capital gains and dividend distributions from an ETVE to a shareholder non-resident in Spain (except PEs of foreign companies) are not considered as income from Spanish sources and, therefore, are not subject to (withholding) tax in Spain provided:

  • The relevant income was derived by the ETVE from foreign-sources and qualified for the participation exemption at the level of the ETVE; and
  • The recipient is not established in a non-cooperative jurisdiction (see Sec. 13.5.).