Foreign Securities Holding Entity

Spanish legislation has provided a wide range of measures and incentives for individuals and companies, which have favored the international establishment of Spanish companies as well as the attraction of foreign capital.

Among these measures is the regulation of the Foreign Securities Holding Entities; Commonly known in Spain as ETVEs “Entidad de Tenencia de Valores Extranjeros”.

Implemented in Spain in the 1990s, its objective was to equal other European countries’ regulations.

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What is an ETVE?

ETVEs are entities that hold foreign securities. They are companies resident in Spain, which, by meeting certain requirements, can benefit from a special tax regime.

This tax regime is regulated by Articles 107 and 108 of the Corporate Income Tax Law.

Its main benefit is the exemption of income from holdings in foreign entities. This means exemption on dividends and capital gains generated on the transfer of such holdings.

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Securities lending and repurchase transactions

Stock loans and repos are efficient portfolio management techniques. These techniques are commonly used by the management companies of collective investment institutions. The advantage of these techniques is that their benefits can be obtained indirectly in benefits for the participants.

What requirements must the ETVE meet in order to qualify for tax benefits?

Companies that meet the following requirements can benefit from the special tax regime ETVE:

1. Entities whose corporate purpose includes the activity of management and administration of securities of non-resident entities. The corporate purpose does not have to be exclusive or principal.
2. These entities must have an organization of material and personal means that allows the development of their activity. This requirement is understood to be met when the ETVE has at least one employee. Even if said worker simultaneously performs other types of work in other companies of the group.
3. The securities of non-resident entities must be registered. The data of the partners must be included in the register of partners. Therefore, if a corporation wants to benefit from this regime, it must issue registered shares (without the possibility of its capital being made up of bearer shares).
4. The percentage of participation in each company by the ETVE must be at least 5%. If it does not reach 5% but the acquisition value is greater than 20,000,000.00 (euros), it is understood that the requirement has been met.
5. The holding in the entity in question must be maintained for at least one year without interruption.
6. The investee company must carry out a commercial activity. It must also be subject to a foreign tax of a similar nature to Spanish corporate tax.

What are the incompatibilities of the ETVE regime?

The special tax regime applicable to the ETVE is incompatible with UTEs (Joint Ventures) and AIEs (International Joint Ventures).

Companies that are considered to be asset-holding entities (those in which more than half of their assets are made up of securities or are not assigned to an economic activity) cannot benefit from it.

The purpose of the regulation is to ensure that these are not merely instrumental companies.

In what period can the special tax regime begin to be applied?

Those entities that, complying with the requirements set out above, agree to apply the regime must notify the State Tax Administration Agency (AEAT). This communication is an essential requirement for its application.

The regime will be effective from the tax period that ends after the communication.

What other formalities must an ETVE met?

1. They must keep their accounting records, according to the Generally Accepted Principles.
2. They are obliged to record the accounting and annual accounts on an annual basis.
3. They must indicate in the annual accounts the exempted amount.
4. They must state the tax paid abroad on such income.

The information referred to in paragraphs 3) and 4) above shall be provided in the notes to the annual accounts.

Conclusions

The ETVE tax system offers an advantage to companies that have their investment headquarters abroad in Spain. International relocation of registered office.

Its main benefit is the exemption on dividends and profits obtained by holding shares in foreign companies. It is necessary not only to comply with certain requirements, but also to notify the AEAT of the application of the regime.

If this article has been of interest, we also suggest you to read the following article published on our website: International relocation of registered office