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[ESTABLISHING A BUSINESS ENTITY IN SPAIN]
closing: tax treaty shall apply: Usually double subsidiary, treaties provide that capital gains from a dissolution of a subsidiary or the closing of a branch shall be taxed in the country where the parent company earning the capital gains is located, except when real property assets located in Spain are involved, allowing then to be taxed also in Spain . If it is EU-resident / EEA-resident (except tax heaven): • Dividends / branch’s profits are usually tax-exempt. The exemption usually applies to dividends paid to an EEA- residence also (except tax heaven) provided that there is an effective exchange of tax information. If the exemption cannot be applied: (i) dividends shall be taxed at the reduced rate under the relevant tax treaty with Spain, and (ii) branch’s profits under most treaties, shall be exempt from tax in Spain. If there is no tax treaty with Spain and the exemption cannot be applied, the applicable rate will be 19%. - Interest: interest paid are usually tax- exempt. Exemption also applies to EEA-resident provided that there is an effective exchange of tax information. If the exemption cannot be applied to interest, the reduced rate under the relevant tax treaty with Spain will apply. If there is no tax treaty with Spain and the exemption cannot be applied, the applicable rate will be 19%. - Capital Gains coming from the subsidiary’s dissolution or the branch’s
closing is usually tax-exempt. The exemption usually applies to EEA- residence also (except tax heaven). If requirements for exemption are not met, relevant tax treaty with Spain will apply. Usually, double taxation treaties provide that capital gains (“ganancias patrimoniales”) shall be taxed in the country where the parent company earning the capital gains is located, except when real property assets located in Spain are involved, allowing then to be taxed also in Spain. If there is no tax treaty with Spain and the exemption cannot be applied, the applicable tax rate will be 19%. o Closing a Branch or dissolving a subsidiary is also taxed by Transfer Tax at the rate of 1% on the market value of goods and rights refunded to the parent company, except when the parent company is an EU Company or is a company with a registered office located within EU and headquarters (center of effective management) is located out of EU.
Withholding tax
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Taxable Incomes (profits, dividends, interest, stock refunding) paid by the subsidiary or branch to the parent company taxable in Spain shall be subjected to withholding tax at a rate of: o 19%; or o at the reduced Double Taxation Treaty rate, if applicable. Tax-exempt Incomes: shall be not subjected to withholding tax.
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ILN Corporate Group – Establishing a Business Entity Series
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