Amicorp Group specializes in business and knowledge process outsourcing (BPO/KPO), entity management services including corporate management and administration. Our group has over 40 offices in over 28 countries, with approximately 900 specialists working worldwide.
Unlike other corporate trust providers, Amicorp has always had a strong focus on the emerging markets. Despite exceptionally high growth coming from our offices in Asia, we still generate more than 50% of our business from Latin America.
One of the subjects that continually interests our clients is the ETVE (Entidad de Tenencia de Valores Extranjheros), the Spanish holding company regime. Whilst Amicorp operates in “classic” jurisdictions, it is not surprising that our Latin America, North American and European clients express interest in less familiar jurisdictions – and one in which we have a strong presence – Spain.
Through its historical, cultural and economic links with Latin America and Europe, Spain operates as a natural link between both regions. The attendant tax features of these relationships and substantial Spanish treaty network with Latin America make Spanish companies very efficient vehicles through which European groups can channel Latin American expansion. In fact, Spain has signed tax treaties with almost all of the most significant Latin American countries. The Spanish regime has passed the “harmful tax competition” test of the European Union authorities and is not included in the Code of Conduct black list.
The ETVE is an ideal vehicle for investments in Europe and Latin America. Spain offers a tax efficient jurisdiction to hold foreign investments, with exemptions granted for dividends and capital gains, and over 70 Double Taxation Agreements with other jurisdictions. Added to this is the benefit of using the Spanish language, familiarity with the legal system as Latin American corporate law is based on Spanish law, and Spain’s membership of the European Union.
The ETVE is a regular legal entity in the form of a limited corporation (SA), or in the form of a private limited company (SL). It is therefore fully subject to the normal corporate tax rate applicable in Spain of 35%, with the sole distinction of providing an exemption for dividends and capital gains deriving from foreign subsidiaries. If certain requirements are met, these types of income will be fully exempt from entering into the taxable base of the company and also this income could be repatriated to the shareholder's country without being liable for Spanish withholding tax.
The ETVE is protected by EU Directives such as the Parent-Subsidiary Directive and the Merger Directive. It is regarded as a Spanish resident for tax purposes regarding the application of Spain’s tax treaties. The broad tax treaty network with Latin America and the European character of the ETVE make it an appealing vehicle for channeling capital investments towards Latin America, as well as a tax-efficient exit route for EU capital investments by non-EU companies.
The main tax benefits of a Spanish holding company are:
- Total participation exemption for dividends and capital gains realized on the disposal of shares;
- Absence of a withholding tax on distribution of non-Spanish source dividends;
- Full deductibility of interest payments;
- No capital duty on share-for-share contributions and on the issue of share capital for entities established in certain provinces;
- Exemption of overseas branch income;
- Spain allows interest relief on borrowings to finance the acquisition of shares in foreign subsidiaries; and
- Availability of pre-transaction rulings.
Latin American investment structures can utilize different parent companies to optimally suit the investor’s needs. Ultimately, the Spanish tax administration does not “look through” all layers of the structure. Provided the foreign shareholding receiving the distributions from the ETVE are not located in tax havens, distributions may flow through this jurisdiction and out again to another jurisdiction.
ETVE regime at a glance
- Corporate purpose and substance: (a) Management and administration of participations in foreign subsidiaries (requires an effective presence) (b) can perform any other activities (c) Majority of directors are Spanish tax residents;
- The receipt by an ETVE of dividends and capital gains from a sale of participation shares are tax exempt provided:
- The ETVE :
- Holds a 5% or greater direct or indirect participation in the distributing foreign (non-EU) affiliate; and
- Holds the participation share for 12 consecutive months.
- The participation is:
- Subject to income tax analogous to the nature of that in Spain. This is satisfied where the participation is resident in a tax treaty country which includes an exchange of information clause
- Nominal taxes on global income, entities subject to transparent or attribution to regimes can qualify. Territorial tax systems do not qualify
- Is not resident in a tax haven;
- “85/15 Rule”: Income earned outside Spain must be at least 85% active income;
- Real estate, finance/credit related income qualifies given sufficient operational substance;
- Capital losses are deductible. Interest expenses incurred in connection with the acquisition of a foreign participation are deductible.
If you would like more information on this subject or any other Amicorp products or services, please do not hesitate in getting in touch with us.