Spanish Holding Facelift

Legislative changes and current economic trends give life to Iberian companies

When talking about tax planning nothing is new about Spanish Holding Companies

Since 2004, when the restated text of the Corporations Tax Law was approved by Legislative Decree 4/2004 the FSHE regime was created – (Foreign Securities Holding Entities)- the appearance of these kinds of entities turned into something almost common.

The FSHE had certain particularities and limitations, as well as being more costly compared to competing jurisdictions- these factors many times played against them.

Originally, the FSHE established that any company can follow the regime provided their corporate purpose comprises of management and administration activities of securities representing funds of entities not residing in the Spanish territory.

The requirements that allowed for the regime’s benefits – to which we will get back later- were the following:

• At least 5% share in the non-resident company’s capital or if lower, a value higher than 6MM Euros.
• Minimum share must be maintained uninterruptedly during the year prior to the year when the benefit is claimed. The foreign entity must be taxed by a tax analogous to the Spanish corporations’ tax. The requirement is fulfilled when the company is domiciled in a country that has entered into an agreement with Spain to avoid double taxation with an information exchange clause.
• Dividends to be distributed must come from commercial activity abroad.
• Communication to Treasury that the FSHE regime is being used.
• Have material and personal means to carry out its purpose.

What income is originally exempt?

• Dividends paid by non-resident entities provided they come from business activities (not passive income) and that represent at least 85% of the fiscal year’s income.
• Capital profits or surpluses obtained for the sale of the interest in non-resident affiliates in Spanish territory.

Why is the Spanish holding regime more attractive now?

• Euro-Dollar ratio: currently they are almost at parity, having a Spanish holding company and also domiciled within the EU, is no longer expensive in relative terms.
• The crisis has also played its role causing a reduction in costs, which makes the Spanish jurisdiction much more competitive than a few years ago.
• Amendments set by the 27/2014 Law have incorporated a general exemption regime for relevant interests in the local and international scope in dividends matters. Article 21 demands a interest higher than 5% or a value of 20MM Euro.
• In case of non-resident corporations, the requirement on the performance of an economic activity has been eliminated provided the subsidiary had been subject to a tax rate of at least 10% nominal value, or that it is domiciled in a country that has entered into an agreement with Spain to avoid double taxation.
• Lastly, there have also been changes regarding the non-resident income. As a general rule, the surplus or capital profits which derive from the sale of shares in a Spanish Company, are taxed at 20%. However, this tax may be reduced to zero when the seller is domiciled in countries that have entered into an agreement with Spain to avoid double taxation (Uruguay is a clear example thereof).

In summary, Spanish companies whether or not following the FSHE regime have been revitalized in the last period, improving their positioning and their cost benefit ratio.

Eliminating the demand in reference to the origin of commercial income opens the doors to many other activities that until recent were excluded from the Spanish holding scope.