Following the entry into force of the 2015 tax reform in Spain, the introduction of the new legal regime of holding companies has been the source of important novelties limiting some of the incentives that companies falling into this category can apply to their corporate income tax.
Definition of a holding company
A holding company is an entity that dedicates its activities only to the administration of assets and therefore does not realize any economic activity itself. However, a holding company is a type of company not too distinct from the business point of view, but which is generally constituted with the aim to separate some assets, and therefore legally disconnect ownership, of businesses running other commercial activities and operating in another company.
The new Corporate Income Tax Act defines holding companies as those in which more than half of the assets consists of by shares or assets that are not related to an economic activity. This happens when the majority of the company’s assets are composed of shares or when these assets are composed of property that is rented or which is not allocated to any activity.
The assets which determine if your company is a holding company
Through the 2015 reform, the determination of the value of the assets is calculated according to the average of the quarterly balance sheets of the entity or the consolidated balance sheet — in the case of a parent company in a group of companies — regardless of the entity’s residence and obligation to formulate consolidated annual accounts.
For tax years before 2015, the cumulative amount of the corresponding annual balance sheets will be considered, with the limit of those initiated before January 2009.
The assessment will be based on the Spanish Plan General Contable (General Accounting Plan) by dividing the assets related to economical activities from those that are not.
The 2015 reform seriously tightened the conditions of the items that are not considered assets, reducing them only to money or credit claims coming from the transmission of assets related to economical activities, but also by shortening the period to two years.
Consequently, many companies, which were not considered holding companies, will fall into this category in 2015.
Restrictions on Corporate Income Tax
To conduct proper tax planning, the limitations introduced by the 2015 reform on holding companies should be taken into account.
At the partner’s level, it is now precluded:
- The application of exemption to Property Tax
- The 95% bonus from Inheritance and Gift Tax at the moment of transmission.
At the corporate income tax level, the application of the following tax incentives is now precluded:
- In the case of the sale of a company’s shares, the exemption of double taxation
- The compensation of negative tax bases in the case of shareholder change
- The 15% reduced tax rate for recently created entities
- The incentives of the small-sized entities regime (lower rate, accelerated amortization, etc.)
- The regime of entities holding foreign securities.
This article is not considered as legal advice