International relocation to Spain from non-EU countries

Spain is increasingly emerging as an attractive destination for foreign investment and high net worth individuals, as it offers tax efficient structures in an EU country.

One result is that emerging companies and those with an advanced track record should consider Spain as a place to establish their holding corporate structure.

Advantages of Spanish domicile

Spanish domicile offers business advantages including almost total exemption on dividends and capital gains from Spanish and foreign sources; special tax regimes for legal entities (ETVE regime) and individuals (an “impatriate” regime commonly known as the Beckham Law); double taxation agreements with 104 countries; high standards in terms of prevention of money laundering; and the easy, technologically-advanced remote banking.

There are a number of alternative investment structures that can benefit from the above advantages. The most obvious is the acquisition or incorporation of a limited company into which the invested assets are transferred. But Spain also recognizes the international transfer to Spain of the domicile of a foreign asset-holding company.

This alternative is used more and more frequently because it provides an important advantage: the transfer of domicile does not per se determine the generation of taxable income in Spanish territory for the purposes of the company or its members/ investors.

Applicable regulations

This article considers the transfer of domicile into Spain of companies located outside the European Union and the European Economic Area.  However, it is worth mentioning that EU member states take Directive (EU) 2019/2121 on cross-border transformations, mergers and divisions as the basis and assimilate the international transfer of domicile to a merger or even a transformation, since the company in question effectively transforms its original corporate form into the one that best suits it in the country of destination.

Law 3/2009 is the regulatory backbone of the international transfer of domicile operation, which will be possible provided that the legislation of the country of incorporation allows the transferring company to maintain its legal personality once it has been re-domiciled in Spain. In this case, the company must comply with the requirements established by Spanish law for the incorporation of the type of company in question (minimum capital, types of shares or holdings, composition of the administrative body).

In Spain, the rules governing the transfer of non-EU companies are very generic, so we often have to apply by analogy the provisions applicable to transfers within the EU, especially regarding the presentation of the necessary documents.

Execution of the transfer and subsequent steps

Once the formalities required in the jurisdiction of origin for the transfer have been completed, a public deed must be filed with the respective Spanish commercial registry containing, among others: (i) the corporate decision authorizing the transfer; (ii) the appointment of the company’s administrative body; (iii) the company’s articles of association in a form compliant with Spanish law; (iv) a certificate issued by the foreign registry stating all the acts and circumstances that must be registered under Spanish law; and (v) the simultaneous filing of the annual accounts for the last completed financial year.

In addition, in the case of a company incorporated outside the EU/EEA, an independent expert’s report must prove that its net worth covers the amount of share capital required by Spanish law.

When the Spanish commercial registry registers the deed, the transfer is deemed to have taken place. However, it is common for its registration to be suspended due to the lack of simultaneous filing of the annual accounts or because in the opinion of the registrar there is no evidence that the company has complied with the requirements of its country of origin to transfer.

After registration in Spain, the company must notify the commercial registry of origin to close the company’s registration. On the Spanish side, the transfer must be communicated to the tax authorities and the company must begin to comply with the applicable commercial, accounting and tax obligations. It is from this moment onwards that the transferred company, if its object includes the holding of shares in foreign companies, may avail itself of the ETVE regime, which will be applicable as from the tax period ending after the company notifies the Spanish tax authority of its intention to do so.

Emphasis is placed on the special regime for holding foreign securities or ETVE, as a significant advantage of the transfer to Spain for holding companies. Regulated in Articles 107 and 108 of the Corporate Income Tax Law, the ETVE regime considers 95% of foreign-source dividends and capital gains derived from holding activities paid to shareholders (individuals and legal entities) not resident in Spain to be not obtained in Spain.

Tax implications of the transfer

After discussing the reasons for transferring the domicile of an international company to Spain, explaining how this can be achieved and indicating its main advantage, it remains for us to comment on a key element.  Although we have left this to the end, in fact it normally constitutes the core of the preliminary analysis of feasibility of the transfer.

The tax implications of the transfer in the State of origin for the company and its shareholders are a critical consideration.  For example, does the jurisdiction of origin impose an exit tax? Is the change of domicile a taxable event?   These kinds of issues affect consideration of the transfer of domicile and may make it unfeasible or unwise.

Examining these questions in the two non-EU jurisdictions from which the largest number of companies migrate to Spain, we find that:  Panama has no exit tax; however, in the UK, under TCGA92/S185, the departing company is considered to have disposed of all its assets at their fair market value immediately prior to the time of transfer.  Accordingly, the unrealized capital gains of the departing are taxed.

In conclusion

The international transfer of domicile is a complex process, and it is worth investing some time and effort in a prior feasibility analysis.

It is often very attractive and business-efficient for the company to become tax resident in an EU Member State and to benefit from the special Spanish tax regime for holding companies, along with the other advantages that a privileged location such as Spain entails.