The tax regime of ETVEs: a strategic tool in the international tax planning of corporate groups
A Foreign Securities Holding Company (hereinafter, ETVE by its Spanish acronym) is a Spanish company whose principal purpose is the management and administration of shareholdings in non-resident entities.
The main appeal of these entities lies in their favourable tax treatment, since, provided certain requirements are met, dividends and capital gains derived from their foreign subsidiaries may be exempt from Corporate Income Tax in Spain.
Below we analyse the legal basis of this regime, the conditions required for its application, and the advantages it offers.
What is an ETVE?
ETVEs do not have a specific legal form, as they may take the form of either public limited company or a private limited company. However, they may opt for a special tax regime provided that certain conditions are fulfilled.
The purpose of these companies is to manage and administer shareholdings in non-resident entities from Spanish territory, through the corresponding organisation of human and material resources.
In practice, an ETVE operates as an international holding company, through which investments or participations in foreign subsidiaries are channelled.
The objective is that dividends and capital gains derived from such participations are not taxed in Spain, thus avoiding international double taxation that would otherwise arise if the same income were taxed both in the source country and in Spain.
Requirements for applying the ETVE special tax regime
The ETVE special tax regime is governed by Articles 107 and 108 of the Spanish Corporate Income Tax Act (“LIS“), and may only be applied if the following conditions are met:
- Corporate Purpose:
The company’s Articles of Association must include, among its corporate purposes, the management and administration of securities representing the own funds of non-resident entities, through the appropriate organisation of human and material means. It is not necessary for this to be its exclusive activity, but it must be effectively carried out and supported by real economic substance (such as offices, personnel, and own resources).
- Nominative shareholdings:
The shares or interests held by the ETVE in non-resident entities must be nominative, enabling identification of the shareholder.
- Minimum shareholding and holding period:
The ETVE must hold, directly or indirectly, at least 5% of the share capital or equity of the foreign entity.
Furthermore, such participation must be held continuously for at least one year, or there must be a commitment to hold it for that period.
- Incompatibilities:
This regime may not be applied by entities subject to other special Corporate Income Tax regimes, such as Economic Interest Groupings (AIEs) or Temporary Business Associations (UTEs).
Likewise, asset-holding companies (that is, entities whose main activity consists of managing movable or immovable assets) cannot apply this regime, in accordance with the 2nd paragraph of Article 5 of the Corporate Income Tax Act.
- Taxation of the investee entities:
The non-resident entity must be subject to a tax of a nature identical or analogous to the Spanish Corporate Income Tax, without the possibility of exemption, and must be taxed at a minimum nominal rate (according to administrative doctrine, approximately 10%).
Shareholdings in entities resident in tax havens or non-cooperative jurisdictions are not eligible.
- Notification to the Spanish Tax Authorities:
The entity must formally opt for the application of the ETVE regime by notifying the Spanish Tax Agency (“AEAT“) through the relevant census declaration, using Form 036.
The regime shall apply from the tax period ending after such notification has been submitted.
Tax advantages: elimination of international double taxation
The principal advantage of the ETVE regime lies in the fact that foreign-source income, such as dividends and capital gains, may be exempt from Spanish Corporate Income Tax, provided that the above requirements are satisfied.
These tax benefits operate at two levels: that of the ETVE itself and that of its shareholders.
Tax advantages for the ETVE:
Pursuant to Article 108 of the Corporate Income Tax Act, income obtained by the ETVE from its non-resident subsidiaries shall be exempt when it:
- derives from dividends distributed by foreign entities; and
- arises from capital gains on the transfer of shareholdings in such entities.
In practice, this means that ETVEs may receive and reinvest foreign-source income while being effectively taxed in Spain at only around 1.25%, since they may apply the 95% exemption regime under Article 21 of the LIS, provided that the relevant income has already been taxed in the country of origin or where the investee operates. The purpose is therefore to avoid international economic double taxation.
Tax advantages for ETVE shareholders
Article 108 of the Corporate Income Tax Act also regulates the tax treatment of income obtained by ETVE shareholders, distinguishing between their tax residence and the nature of the income (dividends or capital gains).
Distribution of dividends
When the ETVE distributes profits to its shareholders, taxation depends on whether the shareholder is resident or non-resident in Spain:
Resident shareholders:Dividends or share premium distributions are considered income obtained in Spanish territory and are therefore taxed under general rules.
If the shareholder is an individual, such income is included in the savings base of the Personal Income Tax (IRPF).
If the shareholder is a resident legal entity, the income is subject to Corporate Income Tax, and the 95% exemption under Article 21 of the LIS may apply to avoid domestic double taxation.
- Non-resident shareholders:
According to Article 108.1 of the LIS, dividends or share premium distributions derived from income exempt at the ETVE level (pursuant to Article 107) are not considered income obtained in Spanish territory.
Consequently, they are not subject to Non-Resident Income Tax (IRNR), provided that the beneficiary is not resident in a non-cooperative jurisdiction.
This mechanism grants the ETVE fiscal neutrality, enabling profits earned from foreign subsidiaries to be distributed to non-resident shareholders without additional taxation in Spain, provided the exemption has properly applied at the entity level.
Transfer of ETVE shareholdings
Likewise, taxation arising from the sale or transfer of ETVE shares also depends on the shareholder’s tax residence:
- Resident shareholders:
They may benefit from the 95% exemption on income derived from the transfer, pursuant to Article 21 of the LIS, provided the general participation and holding period requirements are satisfied.
- Non-resident shareholders:
According to Article 108.2 of the LIS, income derived from the transfer of ETVE shares shall not be considered obtained in Spanish territory insofar as it corresponds to reserves allocated from exempt income.
In other words, when such reserves derive from dividends or capital gains obtained by the ETVE from its shareholdings in non-resident entities that have benefited from the exemption provided in Article 107.
In practice, this means that non-resident shareholders may transfer their interest in the ETVE without taxation in Spain, to the extent that the value corresponds to exempt income at the entity level.
Only the portion of reserves or profits not covered by the special regime would be considered Spanish-source income subject to tax.
In conclusion, the Foreign Securities Holding Company (ETVE) regime constitutes one of the tools offered by the Spanish tax framework to companies with an international outlook, enabling them to optimise the taxation of profits generated abroad, avoid double taxation, and efficiently channel international investment.
At our firm, we assist companies in the design, implementation, and management of ETVE structures tailored to their operational reality.
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