According to data from the Ministry of Economy, foreign investment in Spain during the first six months of 2023 reached 11,996 million euros, while Spanish investment abroad stood at 8,753 million euros. The main investors in Spain were the United States, France and Switzerland. One of the ways of investing is to create a holding company. In this sense, we take the example of Elon Musk, who has created Tesla Spain Holdco with headquarters in Barcelona to take advantage of the tax advantages of this type of entity. In this article we tell you what ETVEs are, where they are regulated and what tax advantages they have.
What are ETVEs?
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ETVEs or Entidades de Tenencia de Valores Extranjeros (Foreign Securities Holding Entities) are trading companies (public limited companies or limited liability companies) resident in Spain that hold shares in companies located abroad. This type of entity is subject to a special tax regime regulated by the Corporate Income Tax Act. It is therefore a holding company that manages both domestic and international subsidiaries.
The incorporation and operation of this type of entity is governed by the same rules as public and private limited companies in Spain.
What is the share capital of an ETVE?
In the case of a public limited company, the minimum share capital is 60,000 euros and in the case of a limited liability company, the minimum share capital is 3,000 euros. It is important to know that this capital can be made up of money, goods (movable, immovable) or rights with an economic content (securities, industrial or intellectual property rights or credit rights, among others).
Tax benefits for Foreign Securities Holding Entities
The tax regime for these entities is set out in Article 21 of the Corporate Income Tax Law and is as follows and depends on the nature of the shareholder:
Individual shareholder residing in Spain
In this case there is no advantage over the general regime, as the profit obtained by the individual shareholder will be taxed as if it were another dividend and it is not possible to avoid double taxation with respect to the profit obtained by the ETVE.
If shares or partitions are transferred, no special tax regime applies and the shareholder will be taxed on the gain or loss, which will be added to the taxable savings base.
Shareholder legal entity resident in Spanish territory
If the ETVE distributes profits, the 95% exemption regulated in Article 21 of the LIS applies provided that the shareholder holds at least 5% of the capital and has held the shareholding for twelve months.
If participations or shares are transferred, the double taxation exemption applies when the shareholder has a direct or indirect participation of 5% or more in the ETVE and the percentage has been maintained during the previous year.
The double taxation exemption means that the after-tax profit of the subsidiary is no longer taxed again when dividends are distributed to the parent company, and can be disregarded for entrepreneurial risk from the subsidiary company at the seat of the ETVE.
What requirements must be met for the special regime to apply?
In order for the special regime detailed in the previous paragraph to apply, a series of requirements must be met, which are as follows:
- The entity must have an economic activity, i.e. it must have sufficient material and human resources to carry out the activity and cannot subcontract the provision of the service.
- The ETVE’s shareholding in the foreign entities must be at least 5%.
- An entity wishing to apply the tax regime described above must notify the Spanish tax authorities in writing before 31 December of the year prior to the year in which it intends to apply the new regime. It is therefore a voluntary regime that simply requires notification.
- In the event that the entity is already incorporated and wishes to apply this regime at a later date, it must be approved at the General Meeting and an amendment to the company’s articles of association must be made by means of a public deed to be registered at the Mercantile Registry.
- When the annual accounts of the entity are presented, the income that has been exempted for double taxation must be reported and the shareholders must also be informed of their tax obligations, taking into account the nature of the shareholder and their country of residence.
Which entities are interested in the tax benefits of ETVEs?
The application of the special ETVE tax regime is of interest in the following cases:
- When dealing with a natural person or a company that is not located in Europe and has subsidiaries in Europe.
- In the case of investors who are abroad in countries with which Spain has signed an agreement to avoid international double taxation.
Therefore, the main reason for setting up an ETVE is that a 95% exemption from IS taxation can be achieved in certain cases of distribution of dividends and profits. For example, if a subsidiary is sold, the taxation of the capital gain would be 1.25% (5% non-exempt x 25% tax rate) provided that the taxation between the source and destination country is similar, and the double taxation agreement allows it. This would represent a significant tax saving.
To set up an ETVE you need expert advice, which is why we offer you a team of professionals with extensive experience in the creation of companies in Spain who will analyse your needs, the various options that exist and will carry out all the procedures to set up the entity in an agile and fast manner and in compliance with the applicable regulations.
