SPAIN Law and Practice Contributed by: Álvaro Paniagua Rico and Borja López Pol, Anaford Abogados
• dividends distributed between Spanish companies, as well as EU companies and non-EU companies with a tax treaty in force, may benefit from a 95% exemption; and • capital gains derived from the sale of subsidiaries may also benefit from a 95% exemption. Therefore, depending on a range of relevant factors, it may be advisable to consider holding the wealth structure through a holding company. 1.4 Taxation of Real Estate Owned by Non- Residents Non-resident individuals holding real estate properties in Spain will be taxed annually under the Spanish NRIT for the mere holding of the property. The amount due will depend on the cadastral value (an administrative value determined by the cadastral authorities mainly for the registrar and tax purposes) of the property. There is a reduced 19% tax rate for residents in the EU and a general one of 24% for resi - dents elsewhere. In addition, as previously mentioned, non-Spanish tax residents will be subject to Spanish WT and Solidarity Tax for the properties located in Spain owned by the taxpayer at 31 December of each year. Depending on the intended use of the property and other relevant considerations, it may be advisable to assess the possibility of holding the assets through a corporate structure. 1.5 Stability of Tax Laws The autonomous communities in Spain have various competencies in the regulations of inheritance and gift tax, with some communities like the Community of Madrid or the Valencian Community standing out for applying a 99% tax reduction for transfers between family members of group I and II (which includes ascendants, descendants or adopted children, and spouses). However, and in the same way as has occurred with the wealth tax through the introduction of the tempo - rary solidarity tax on large fortunes, the central gov - ernment is proposing a reform of regional funding to
harmonise the inheritance and gift tax. This reform seeks to establish a common minimum rate for all autonomous communities to eliminate disparities, such as the mentioned 99% tax relief. Nevertheless, today, this reform has not been acti - vated by the central government. 1.6 Transparency and Increased Global Reporting The most recent experience shows that the Spanish tax authorities are adopting a more restrictive attitude towards structures that may lead to reduced taxation through the incorporation of foreign companies. This matter is closely linked to the concepts of “place of effective management, ”substance” and “business motivation”, which may justify the existence and incorporation of a company or, conversely, may attract the attention of the Spanish tax authorities and con - sider that they are mere conduit companies that have been incorporated for the sole or main purpose of benefiting, for instance, from domestic exemptions or benefits under double taxation provisions. Spanish tax regulations have transposed the BEPS actions and, in some cases, have even gone beyond the standards set by the OECD. For instance, one of the main anti-abuse measures that may affect private clients is the application of Spanish Controlled Foreign Companies (“CFC”) rules. CFC is a special tax regime that taxes at the level of the Spanish tax resident shareholder certain income generated at the level of non-resident entities as if this income had been distributed to the shareholders (ie, a pass-through). The objective of CFC is to avoid the deferral of taxes using shell companies to accumulate income in juris - dictions with low taxation until the repatriation of the income that has been attributed to the shell company. Therefore, the Spanish taxpayer must add to its PIT’s general tax base the income generated by non- resident entities to be attributed to the shareholder deemed as resident in Spain for tax purposes, inde -
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