Miñana Beltran Tax & Legal, SLP - Everything About the ETVE Regime in Spain

What Is the ETVE Tax Regime in Spain?

The ETVE (Entidades de Tenencia de Valores Extranjeros) regime positions Spain as a strategic hub for foreign investment. This special Corporate Income Tax regime allows foreign holding companies to manage participations in non-resident entities while enjoying significant tax advantages.

Objectives of the ETVE Regime

The ETVE regime was introduced in 1995 to attract international investment by encouraging the creation of holdings in Spain to centralize the management of foreign participations. Its main appeal lies in the exemption from taxes on dividends and capital gains derived from foreign participations, making it an effective tool for international tax planning. It offers a favorable environment for multinationals to manage global investments from a country in the EU with a robust network of Investment Protection Agreements and Double Taxation Treaties.

Requirements to Qualify as an ETVE

To qualify for the ETVE regime, a company must meet specific criteria:

• Appropriate corporate purpose: The company must focus on managing and administering shares in non-resident entities.

• Significant participations: A minimum 5% stake in the capital of the non-resident entity or an investment exceeding €20 million is required.

• Holding period: Participations must be held for at least one year to benefit from the exemption.

• Activity of the invested entity: The non-resident entity must engage in effective economic activity and not be located in a tax haven.

• Separate accounting: The company must maintain accounting records distinguishing ETVE-exempt income from other taxable income in Spain.

Tax Benefits

The ETVE regime in Spain offers several key tax advantages:

• Exemption from dividends and capital gains: Dividends received and gains from the sale of foreign participations are exempt from Corporate Income Tax, provided the requirements are met.

• No withholding tax on dividend distributions: When the ETVE distributes dividends to non-resident shareholders, no withholding tax is applied if the shareholder resides in a country with a Double Taxation Treaty with Spain.

• Global tax optimization: Multinationals can centralize the management of foreign investments in Spain, leveraging the country’s network of bilateral treaties to avoid double taxation.

Comparison with Other ETVE Regimes in Europe

Spain competes with the Netherlands and Luxembourg in attracting investments through holding structures. Both countries offer favorable tax regimes:

• Netherlands: Offers a similar participation exemption for dividends and capital gains but imposes stricter substance requirements, such as the need for real activities and staff in the country.

• Luxembourg: Traditionally popular for holding structures due to its flexible tax policies, Luxembourg has faced increased pressure to adopt stricter transparency rules in recent years.

Advantages of the Spanish ETVE Regime

• Less stringent substance requirements: Spain generally does not demand the same level of economic substance as the Netherlands, reducing operational costs.

• Extensive network of double taxation treaties: Spain has over 90 treaties, including 24 with Latin American countries, providing significant tax benefits such as reduced or eliminated withholding taxes on dividends, interest, and royalties.

• Flexibility in participation management: The regime allows for combining holding structures with other fiscal regimes.

Is the ETVE Regime Right for Your Company?

The ETVE regime offers a flexible and tax-efficient solution for multinational companies seeking to centralize global investments. However, it is essential to evaluate:

• Compliance and operational costs: Ensure that the tax benefits outweigh the costs of maintaining the structure in Spain.

• Compatibility with global investment strategies: Determine whether the ETVE regime aligns with the company’s overall tax planning goals.

The ETVE regime is a powerful tool for international tax planning, offering substantial benefits for holding companies. If you want to explore how this regime can fit into your global strategy, the Miñana Beltrán tax team is here to help.