SPAIN Law and Practice Contributed by: Álvaro Paniagua Rico and Borja López Pol, Anaford Abogados
To mitigate these problems, some countries, such as Switzerland, have signed the Hague Convention of 1 July 1985, on the law applicable to trusts and their recognition (Hague Convention on the Law Applicable to Trusts and on their Recognition), which entered into force on 1 January 1992. This convention offers solu - tions to the problems that arise around the concept of trusts in civil law jurisdictions. In addition, other countries in our region, such as France and the Netherlands, have been embracing this Anglo-Saxon concept. However, this has not been the case in Spain. A Spanish citizen can perfectly well create a trust abroad, but its effectiveness and man - agement may be complicated with respect to assets located in Spain or when settling related matters before the Spanish courts. Foundations, however, are based on civil law or con - tinental law, which governs the legal systems of most countries in Europe and Latin America. However, countries such as Spain recognise only foundations of public interest, not foundations of private interest, which, as with trusts, can complicate their effective - ness and the management of assets located in Spain. The fundamental difference lies in the fact that com - mon law is based on interpretations and judicial deci - sions. In contrast, civil law is based on written rules (which can only be modified by law), making trusts a much more flexible instrument. Trusts are extreme - ly versatile instruments with many possibilities and applications in the private sphere as well as in finance and commerce. 3.3 Taxation of Trusts, Foundations and Similar Entities Located in Other Jurisdictions In general terms, the status of trustee for Spanish pur - poses does not mean that the trustee is the owner or proprietor of the assets; it is merely a formal title. Conversely, being designated as a beneficiary does not imply ownership of the trust assets, although it may have tax implications. This statement will depend greatly on how the trust deed is drafted, the benefi - ciaries’ capacity to use and enjoy the assets and any possible limitations in this regard.
It is possible to create valid trust structures in Spain, although they are more limited compared to other legal entities. This requires a combination of civil law and common law. 3.4 Tax Consequences of Fiduciary and Beneficiary Roles The trust is not recognised under Spanish law; hence no specific development should be undertaken.
4. Family Business Planning 4.1 Asset Protection
As described in 3. Trusts, Foundations and Similar Entities , the trust is a concept that is not recognised under Spanish law. Consequently, Spain does not rec - ognise trusts settled either domestically or abroad. Therefore, this common legal instrument used in other jurisdictions – often for purposes such as asset pro - tection – is not available under Spanish law. Spain does not have an instrument as effective as (or comparable to) a trust for asset protection purposes. However, certain structures, such as unit-linked life insurance policies that tie benefits (both at maturity and upon death) directly to the performance of invest - ment funds chosen by the policyholder, may, in some cases, provide asset protection functions. 4.2 Succession Planning As indicated in 1.2 Exemptions , stakes in family com - panies or business assets may benefit from a 95% to 99% tax relief under the inheritance and gift tax regime, provided that the above-mentioned require - ments are met. Therefore, a key element of family business succession planning is ensuring compliance with the “family company” requirements to qualify for these tax reliefs and transfer the business to the next generation without incurring a significant tax burden. On the other hand, family governance structures are commonly used in Spain, particularly in the context of family-owned businesses, to facilitate succession planning and minimise the risk of future disputes. The most common instruments include shareholders’ agreements, which regulate the relationship between
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