The aim of the present article is to provide a summary of the legal requirements and benefits of Spanish Foreign Securities Holding Entities (henceforth “ETVE”).
For this purpose, after a brief introduction, the basis of an ETVE will be explained and then the prerequisites for the establishment of a corresponding company in Spain.
The purpose of a Spanish holding company
ETVEs are regulated by numerous legal standards on the taxation of companies.
The purpose of an ETVE is to avoid the double taxation of income of Spanish companies from certain foreign company holdings, arising from the fact that the income of foreign companies is taxed in their country of origin and then later taxed again as a result of the profit/dividend distribution in Spain. An ETVE is the result of investments of non-residences of Spain working in Spanish companies. The requirements needed in order to be exempt from this particular taxation are discussed below.
The aim of the special tax status of ETVEs
The aim of this special tax position is economic promotion by means of tax relief. As a result of this privilege, the expansion of Spanish companies abroad and consequently their growth in Germany is to be promoted. Furthermore, Spain aims to become more attractive as an investment location for foreign companies. It is also supported by some legal benefits enjoyed by foreign companies, in the form of the establishment of a limited company.
Legal basis of ETVEs
An ETVE is not a Spanish public company form, but a beneficiary taxation form by a privileged predisposition of certain revenue. The usual corporate form of an ETVE is a public limited company (S.A., which corresponds to a German AG) or a limited liability company (S.R.L. or S.L., which corresponds to a German GmbH). Hereafter, this article refers to ETVEs generally, regardless of the specific company form.
A Spanish company, which meets the requirements listed below, can by simply displaying financial authority, receive privileged taxation on certain income according to the ET. This form of investment is then applied by the ETVE company for the following tax period until deselected by the ETVE company at the following assessment.
An ETVE is a favored form of taxation (Corporation tax law, LIS)
The legal basis of an ETVE company is Chapter 14 of the Corporate Income Tax Law (short “LIS”, which corresponds to the German Corporation Tax Act), that by Royal Decree-Law 4/2004 was adopted on 3 March of 2004. The tax treatment of an ETVE company is governed by Chapter 14, Articles 116-119 of the LIS.
Article 116 para. 1 of the LIS grants all Spanish companies the right of assessment as an ETVE if their purpose is the management of shares which are not found in Spanish-based companies and the company, for this purpose, is equipped with the necessary human and material resources.
The ETVE model conforms to international law
The advantage of choosing this Spanish system compared to other foreign systems is that it is already recognized internationally and no international repression persists. Therefore, a number of countries and institutions such as the United States and the European Court have classified the Spanish ETVE model as legally compliant.
Alexander Rabes & Karl H. Lincke
This article is not considered as legal advice