Spain: Spanish Holding Companies

Last Updated: 31 May 2001
Article by Martin Echaniz

Spain: an attractive base from which to make investments in other countries


The increasing globalisation of markets and the great movements of capital, make that more and more Spanish companies operate abroad, and consequently, they obtain income from an external source.

This fact can cause double taxation, as said income would be subject to taxation in the country where it had been produced, and also in Spain, as long as the Spanish Corporate Tax Law taxes the whole income obtained by the taxpayer (the Spanish company).

To save that situation, the Spanish Corporate Tax Law contains a regime to avoid international double taxation, that is completed with this special regime applicable to Spanish companies the object of which includes the holding, administration and management of shares in subsidiaries that develop an entrepreneurial activity and are established in other countries.

One of the aims of the Spanish holding companies’ special tax regime is to avoid that the capital derived from Spanish sources is destined to companies incorporated in other countries that may have more favourable tax regimes than the Spanish one. The said system attracts the back of the benefits to Spain causing an increasing internationalisation of Spanish companies as well as the increase of incorporations of Spanish companies, due to the tax savings.

The special tax regime consists of the exemption of the income received by the Spanish company, derived from its shares in non-resident companies, provided that certain conditions of participation and activity of the non-resident companies are fulfilled. The exempt income may be dividends distributed by the non-resident companies or any capital gains arising out of the transfer of the non-resident companies’ shares.

The special tax regime applicable to Spanish holding companies is very profitable when the foreign company is domiciled in a country which has not signed a Double Taxation Treaty with Spain, as long as tax savings are obtained. Therefore, it is specially advisable to incorporate Spanish holding companies relating to South American countries, provided that Spain has only signed a few Double Taxation Treaties with said countries. Nevertheless, the practical advantages of this regime are lost if the foreign company is domiciled in the European Union or in a country that has signed a Double Taxation Treaty with Spain, as long as the exemption method may apply. This means that the incorporation of a Spanish holding company in said countries does not imply an additional advantage to such established in Double Taxation Treaties and in the European Union Legislation.


The Spanish holding companies are entities the object of which includes the holding, administration and management of shares in subsidiaries established in other countries, using an organisation composed by personal and material means.

The object of the Spanish holding companies may be any one provided that it contains the holding, administration and management of shares in subsidiaries established in other countries, so it is not necessary for them to have as exclusive or principal object the administration and management of such shares.

In addition, a requirement to fulfil by the Spanish holding companies is that the entity were not a simple owner of shares of non-resident companies. That means that the Spanish holding company must have an organisation of personnel and material means to carry out the administration and management of said shares.

Additionally, the shares in the Spanish holding companies must be nominative, that means that the shares have to show all the identification data of its owner.

There is no requirement regarding the share of participation that the Spanish company has to own in the non-resident company. Thus the percentage may be any, even if the special tax regime is only applicable to income derived from shares that fulfil certain conditions.

Tax Regime

There is a special tax regime applicable to Spanish companies the object of which includes the holding, administration and management of shares in subsidiaries established in other countries. Spain, therefore, may be an attractive base from which to make investments in other countries.

The benefits recognised under this regime are as follows:

  1. Dividends received from the foreign subsidiary are exempt at the holding level in Spain provided that (i) the holding’s stake equals or exceeds 5% of the share capital of the foreign subsidiary or the acquisition cost of the stake exceeds 6 million euros (998,316,.000 pesetas); (ii) such stake has been held uninterruptedly for at least one year before the date the dividends are payable; (iii) the foreign holding must be subject to, and not exempt from, a similar Corporate Tax; (iv) the foreign subsidiary may not be a resident of a tax haven as defined in Spain; and (v) dividends should arise out of foreign source entrepreneurial activities ("active income").
  2. Dividends distributed by the holding company to its shareholders are not exempt in principle and will be taxed as if the dividends were paid to the shareholders of the holding company directly, but this is subject to important qualifications: if the shareholder is a company resident in Spain and it is subject to Corporate Tax, it may apply the deduction to avoid dividends double taxation; similarly, if the shareholder is an individual subject to Personal Income Tax, he may apply the deduction to avoid international double taxation. If the shareholder, whether a company or an individual, is not a resident in Spain, the dividends will not be deemed to have been obtained in Spain, save that such company or individual is a resident of a tax haven as defined in Spain in which case dividends are subject to Spanish corporate tax. These measures can result in effectively minimising or even neutralising taxation.
  3. Any capital gains arising out of the transfer of shares of the foreign subsidiary are exempt at the Spanish holding, provided the requirements mentioned in a) above are met.

Application Of The Special Tax Regime

The application of the Spanish holding companies’ special tax regime depends on the choice of the company, provided that the requirements are fulfilled. The choice of the special holding regime should be notified to the Spanish tax authorities. The requirements mentioned in a) above should be fulfilled, in order to take advantage of said regime. Proof of the fulfilment of the requirements should be provided to the Spanish tax authorities, upon their request.


The Corporate Tax Law contains an incompatibility between the Spanish holding companies’ tax regime and the transparent companies’ tax regime. Transparent companies cannot apply the Spanish holding companies’ tax regime.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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