Spain: Foreign Securities Holding Entities (ETVE)

Foreign Securities Holding Entities (ETVEs) are companies resident in Spain created in 1995 with the aim of attracting foreign investment and positioning the country as a competitive international investment hub. Their special regime is regulated in Articles 107 and 108 of the Corporate Income Tax Law and in Article 51 of its Regulations, in connection with Article 21 of the Law itself. These are Spanish commercial companies that may be incorporated either as a public limited company (S.A.) or as a private limited company (S.L.), with a minimum share capital of €60,000 or €3,000, respectively and must have their registered office and effective management in Spain. The corporate purpose must include the holding, management, and administration of shares in non-resident entities, an activity that must be carried out with its own human and material resources, thereby avoiding the creation of a mere instrumental vehicle without economic substance.

The main attraction of the regime lies in the 95% exemption from Corporate Income Tax on dividends received from foreign subsidiaries and on capital gains derived from the transfer of such shareholdings, provided that certain requirements are met: the minimum shareholding in the subsidiary must be 5% (direct or indirect), held for at least one year; the investee company must be subject to a foreign tax comparable to the Spanish Corporate Income Tax or be located in a country with a double taxation treaty including an exchange of information clause; and the dividends distributed must not constitute a tax-deductible expense for the distributing entity. Since 2021, the exemption is no longer full, as it was previously, but limited to 95%, so that 5% of the income is taxed at the general rate of 25%, resulting in an effective burden of 1.25%.

As regards shareholder taxation, the most significant advantage applies to non-residents without a permanent establishment in Spain, since dividends and capital gains distributed by the ETVE, to the extent that they derive from qualifying income, are not deemed to be obtained in Spain and are therefore exempt from withholding tax, unless the shareholder is resident in a tax haven. For resident shareholders in Spain, dividends are taxed under the general rules of the Personal Income Tax or Corporate Income Tax, although they may apply the exemption for double taxation. In the case of a transfer of shares in an ETVE, capital gains obtained by non-residents are also exempt in Spain, unless more than 50% of the company’s assets consist of real estate located in Spanish territory.

Nevertheless, the regime requires real economic substance. Supreme and National Court case law rejects purely formal structures, demanding genuine presence and activity in Spain. Base Erosion and Profit Shifting (BEPS) and Anti-Tax Avoidance Directive (ATAD) reforms have reinforced anti-abuse controls, including the Principal Purpose Test.

In short, the ETVE is a highly efficient instrument for centralizing international investments from Spain, offering almost full tax neutrality on the repatriation of dividends and capital gains, but conditioned upon strict compliance with legal requirements and the demonstration of genuine economic substance.

‍

Reference/ Citation

Miñana Beltrán. (2024, October 31). Everything about the ETVE regime in Spain. Retrieved from 

https://minyanabeltran.com/todo-sobre-el-regimen-etve-en-espana/

Corporate Income Tax Law (Law 27/2014), Articles 107 and 108, together with Article 21 of the same Law and Article 51 of the Regulation approved by Royal Decree 634/2015.

Personal Income Tax Law (Law 35/2006), of November 28, governing the taxation of individuals in Spain. Key provisions relevant to dividend and capital gains taxation are found in Articles 25 and 33, which define income from movable capital and capital gains, respectively, and in Article 14, which regulates the timing of income accrual. Source: BOE https://www.boe.es/buscar/act.php?id=BOE-A-2006-20764

Spanish Supreme Court and National High Court Jurisprudence Notable case law from the Tribunal Supremo and the Audiencia Nacional has reinforced the requirement for real economic substance in ETVE structures. For example, the Audiencia Nacional ruling of February 15, 2021 (Case No. 109/2018) emphasized that the exemption regime applies only when the entity demonstrates sufficient material and human resources to manage foreign shareholdings, rejecting purely formal arrangements. Source: Audiencia Nacional Judgment https://www.poderjudicial.es/search/indexAN.jsp

‍