SPAIN Law and Practice Contributed by: Raúl Salas and Elena Ferrer-Sama, RocaJunyent
• 19% on royalties paid to residents in the EU, Ice - land and Norway (and 24% in all other cases). For the application of a reduced rate or one of the exemptions described here, the taxpayer must be in possession of a tax-residence certificate issued by the tax authorities of the country of the recipient. Domestic Law Exclusions or Exemptions Dividends According to domestic law, dividends paid by a sub - sidiary to its EU parent company are exempt from withholdings when: • the parent company holds at least a minimum of 5% in the Spanish subsidiary and the interest in the Spanish subsidiary has been held for at least one year before the dividend distribution (or will be held, up to completing the one-year period); • both the entity paying the dividends and the ben - eficial owner are subject to and not exempt from one of the corporate taxes mentioned in Article 2 (c) of Council Directive 2011/96/EU of 30 June 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different member states (the “Parent-Subsidiary Directive”); • the payment is not the consequence of the liquida - tion of the subsidiary; and • both the entity paying the dividends and the ben - eficial owner have one of the legal forms listed in the Annexes to the Parent-Subsidiary Directive. This exemption will not be applicable where the major - ity of voting rights of the receiving entity is directly or indirectly owned by non-residents in the EU, unless it is proven that the incorporation of the receiving entity is based on valid economic reasons and sound busi - ness reasons. Interest Interest paid to an EU resident is exempt from with - holding. This exemption does not apply when the recipient is tax-resident in a tax haven. Royalties Royalties paid in an EU member state are exempt from withholding when the following requirements are met.
• Both the entity paying royalties and the beneficial owner have one of the legal forms listed in the Annexes to Council Directive 2003/49/EC of 3 June 2003. • Both the entity paying royalties and the beneficial owner are subject to and not exempt from one of the corporate taxes mentioned in Article 3 (a)(iii) to Council Directive 2003/49/EC of 3 June 2003. • Both entities are resident in the EU and neither of them is resident in a third country with a double taxation agreement (DTA). In addition, both enti - ties must be associated companies – ie, one has a direct minimum holding of 25% in the capital of the other or else a third company has a direct mini - mum holding of 25% in the capital of both entities. This holding should be held for a minimum holding period of one year, which could be completed after the payment. The entity that receives those royal - ties should receive them for its own benefit and not as an intermediary (eg, an agent, trustee or author - ised signatory) for some other person. If the recipi - ent is a permanent establishment (PE), the received royalties should effectively be connected with the PE’s activity and should be a taxable income for the PE. This exemption on royalties will not apply if the major - ity of voting rights of the receiving entity is directly or indirectly owned by a non-resident in the EU – unless it is proven that the receiving entity was incorporated on the basis of valid economic reasons and sound business reasons. 4.2 Key Treaty Jurisdictions for Inbound Investment Currently, Spain has entered into double taxation trea - ties with more than 90 countries – the main aim of which is to eliminate double taxation and provide for reduced rates of withholding taxes of dividends, inter - ests and royalties. Double taxation treaties concluded by Spain are generally compliant with the provisions set forth by the Organisation for Economic Co-oper - ation and Development (OECD). Owing to the favourable taxation of EU corporations, most foreign investors invest via EU member states. Luxembourg and the Netherlands are the primary tax-
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