SPANISH HOLDINGS: A KEY TOOL FOR FOREIGN INVESTMENT

What is an ETVE?


The ETVE (Entidad de Tenencia de Valores Extranjeros) is a Spanish company subject
to Spanish corporation tax (at a rate of 30%) on its Spanish trading income, but
exempt from taxation on qualified foreign-source dividends and capital gains.

Why are ETVEs attractive?


Tax benefits play a large part, but there are other reasons why ETVEs can be such an
interesting tool:

a) Spain has entered into an array of tax treaties with more than 70 countries.

These include most countries in the American continent: Canada, USA, Mexico,
Cuba, Jamaica, El Salvador, Colombia, Venezuela, Ecuador, Brazil, Bolivia,
Argentina, Chile. (Treaties with Costa Rica, Peru and Uruguay have been signed
but are not yet in force).

b) Spain has signed Bilateral Investment treaties with many Central and South
American countries that protect Spanish investments stating that they cannot
be treated worse than domestic investments.

What are the main tax benefits?


a)    No corporate income tax on dividend income received.

b)    No capital gains tax on the sale of shares in qualifying non-resident
Subsidiaries.

c)    No withholding tax on outgoing dividends subject to the following
requirements:
- Dividends are distributed out of exempt dividends or capital gains
obtained by the ETVE from qualifying subsidiaries;
- Dividends are paid to a non-resident individual or entity;
- The recipient is not a resident of a tax haven jurisdiction.

d) No taxation of inbound dividends subject to the following requirements:
- Qualifying subsidiaries must be foreign resident entities outside of tax
haven jurisdictions, subject to domestic tax and carry out business
activities;
- The ETVE must hold, directly or indirectly, a 5% participation in the
non-resident subsidiaries or it must have an acquisition cost of at least 6
million euro. This participation must be held for an uninterrupted period
of at least 12 months.

e) Extension of no withholding on distributions of profits from permanent
establishments. A recent binding ruling extended 0% dividend withholding tax
to distributions made by an ETVE out of the profit generated by its US financing
branch.

Other features

a) Losses derived from the transfer of a participation in a non-resident subsidiary are
tax deductible (limitations apply to participations acquired from a company of the
same group).

b) Capital gains arising from a transfer of ETVE participations by a foreign
shareholder are exempt if the gains derive from retained earnings which come
from exempt dividends and capital gains obtained from qualifying subsidiaries (if
the transferor is not resident in a tax haven jurisdiction).

c) Cash contributions are subject to Stamp duty at a rate of 1%; contributions in kind
may not be subject to it.

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