SPAIN Law and Practice Contributed by: Antonio Paredes, Carlos Saldaña, Manuel Martínez and Román Mejías, ZADAL
3.9 Call Protection Call Protection in Spanish Private Credit
a conduit with insufficient substance or decision-mak - ing capacity. This makes lender-of-record structuring, substance, and documentation critical in cross-border private credit transactions. Specific Statutory Exemptions and Fees There are also specific statutory exemptions (eg, cer - tain interest on eligible listed bonds, Spanish public debt, and some non-resident bank account interest), but these require case-by-case confirmation. Fees paid to non-Spanish lenders are not treated identically to interest under Spanish tax law, so their characteri - sation and any withholding exposure must be ana - lysed individually, including under the relevant double tax treaty and the nature of the services or functions the fee relates to. 4.2 Other Taxes, Duties, Charges or Tax Considerations VAT Treatment of Financings and Security In Spain, loan and other financing agreements are generally VAT-exempt under the EU VAT framework and Spanish VAT rules. As a result, the granting of a loan is exempt from VAT, and VAT is not charged on interest or principal repayments. Security docu - ments such as pledges, mortgages and guarantees are also typically VAT-exempt where they are ancillary to the exempt financing and not treated as separate services. When Stamp Duty Can Apply Even if VAT does not apply, Spanish stamp duty (AJD) may be triggered where three conditions are met: the transaction is documented in a public deed, it has valuable economic content, and it is registrable in a Spanish public registry (eg, Land Registry or Movable Assets Registry). Rates are set by the Autonomous Communities and typically fall in the 0.5%–2% range, depending on the region. Who Bears Stamp Duty and Common Structuring Points For stamp duty purposes, the taxpayer is generally the beneficiary of the notarised document (often the lender), but in private credit and corporate practice the cost is commonly passed to the borrower contractu - ally. Not all security triggers AJD: pledges and other security interests only attract stamp duty if the above
In Spain, private credit providers typically expect clear economic protection if the borrower refinances or pre - pays early, especially in sponsor-backed deals where refinancing risk is high. Market practice is usually a non-call or soft-call period in the first 6–24 months (sometimes longer for higher-risk credits), implement - ed through a prepayment premium, make-whole-style economics, or a stepped-down fee schedule. The strength of call protection depends on competition and credit quality: stronger borrowers can negotiate lighter or shorter protection, while tighter credits often carry more robust premiums, and documentation commonly preserves protections for lender returns on repricings, amendments that effectively reduce yield, and early take-outs via public or bank markets. Interest paid by a Spanish borrower is generally sub - ject to Spanish withholding tax, with the borrower acting as the withholding agent. For Spanish-resi - dent lenders, a 19% withholding can apply, although certain entities (notably Spanish credit institutions, registered branches of foreign credit institutions, and Spanish securitisation funds) are typically exempt from withholding on interest. Non-Spanish Lenders: EU and Treaty Relief For non-Spanish lenders, withholding (19%) will be triggered unless an exemption or reduced rate can be applied. Relief may arise under EU rules (where the Interest and Royalties Directive conditions are met) or under an applicable double tax treaty providing for a reduced rate or exemption. Accessing relief usually requires meeting formal and substantive conditions, including providing a valid tax residence certificate and satisfying structural requirements (eg, no Spanish PE receiving the interest). Beneficial Ownership and Anti-Conduit Scrutiny Spanish tax authorities focus heavily on the beneficial owner of the interest and may deny exemptions or treaty rates where the immediate lender is viewed as 4. Tax Considerations 4.1 Withholding Tax Default Rule and Withholding Obligation
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