Legal Briefing

Spanish holding companies: a suitable vehicle for investing in Latin America

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Corporate & Commercial | 04 July 2011


Since its introduction in 1995, the Spanish holding companies’ regime, Entidades de Tenencia de Valores Extranjeros (ETVEs), has proven to be an attractive and competitive international tax planning scheme for multinational groups from the EU, US and, more recently, Asia (China and India), particularly with respect to investing in Latin America.

An ETVE is an ordinary Spanish company, subject to corporate tax at the general rate of 30% on its local trading activities. However, an ETVE benefits from the participation exemption regime on qualified foreign source dividends and capital gains. Similarly, qualifying dividends and capital gains obtained by shareholders in an ETVE, who are not resident in Spain for tax purposes, are tax exempt in Spain.

An ETVE is considered to be a Spanish tax resident company that benefits from the broad Spanish tax treaty network and the EU Directives such as the Parent Subsidiary Directive. The main tax benefits of an ETVE are detailed below.


The first benefit is tax exemption on qualified foreign source dividends distributed to an ETVE and capital gains realised on the disposal of foreign affiliates.

To qualify for the participation exemption regime, the following conditions must be met:

  • Minimum 5% holding of the foreign company, except for investments of more than €6m.
  • The holding in question must be owned continuously for at least one year.
  • The non-resident subsidiary must be subject to a corporate tax that is comparable to the Spanish corporate tax. This condition should be satisfied if the company is located in a jurisdiction that has signed a double tax treaty with Spain and that contains the information exchange clause, provided that the jurisdiction is not a tax haven.

Most Latin American countries have signed tax treaties with Spain containing the information exchange clause; therefore, this condition would usually be fulfilled for investments in the region.

  • The non-resident subsidiary is engaged in an active trade or business.

The second benefit is local taxation on dividends distributed from Latin American subsidiaries to an ETVE and capital gains realised by an ETVE will be limited to the reduced tax rates determined by the relevant double tax treaties signed by Spain, rather than the domestic tax rates.

The third benefit is outgoing qualified dividends paid by an ETVE and capital gains realised by its foreign shareholders (unless they are resident in a tax haven jurisdiction) are also tax-exempt in Spain (ie no withholding tax arises) to the extent that they ultimately derive from its non-Spanish subsidiaries (eg retained earnings from ETVE foreign source-exempt income and underlying goodwill attributable to foreign subsidiaries).


In general, an ETVE may deduct the portfolio provisions on its foreign affiliates, as well as interest on loans received to fund their acquisition, subject to complying with relevant debt-cap rules.

An ETVE may form part of a Spanish tax consolidation group and may also be an operating entity.

The incorporation of an ETVE does not give rise to a 1% stamp duty charge and does not require authorisation; rather, only formal notification to the Spanish tax authorities is necessary.

An ETVE is required to have some degree of substance to demonstrate that enough resources have been allocated to manage its foreign interests. Hiring a director to manage the company may be sufficient.


Spain has a wide network of double tax treaties, information exchange agreements and foreign investment protection agreements with Latin American countries. The double tax treaties in force are: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Cuba, Ecuador, El Salvador, Jamaica, Mexico, Trinidad and Tobago, Uruguay and Venezuela. In addition, Spain has signed double tax treaties with Barbados, Panama and Peru, which should become effective in the near future.

In Asia, Spain has, among other countries, double tax treaties with China, India, Japan and Korea. In the coming months, newly signed double tax treaties with Singapore and Hong Kong should become effective.


A Spanish ETVE holding company is a tax-efficient vehicle for structuring capital investments in Latin America. As a result of the ETVE special tax regime, it may be possible to distribute income flows generated in the region to foreign shareholders of an ETVE without incurring Spanish taxation. Moreover, due to the double tax treaty network between Spain and many Latin American countries, the Latin American taxation of said income flows distributed to the ETVE will be limited to the reduced tax rates determined by the relevant double tax treaty rather than the domestic tax rates.