In this regard, it is not necessary for a Spanish Holding Company to control and manage the activities of the participated companies, but rather to control the participation itself. Although the law does not regulate this requirement, Spanish tax authorities have interpreted it very flexibly. In principle, any Spanish entity subject to the CITA is eligible for Spanish Holding Company status. All of these afford limited liability and are subject to normal Spanish Corporate Law requirements and initially qualify for parent-subsidiary withholding tax relief, under which certain dividends paid by European companies to its Spanish resident parent companies are subject to a zero withholding tax. The Spanish tax authorities will grant the Spanish Holding Company status by means of a personal ruling or by simply not opposing the application within three months from the date of submission of the ruling request.
Past experience shows the average time for obtaining the ruling is approximately six weeks.
The special tax regime will come into effect in respect to fiscal periods, which end after the ruling is issued. The incorporation of the Spanish Holding Company is subject, in principle, to a 1 percent capital tax on the total amount of contributed capital and share premiums. However, contributions in kind to the Spanish Holding Company in respect of shares representing 5 percent of the equity of operating foreign entities are exempt from the capital tax. Finally, there are other ancillary costs related to the incorporation of a Spanish entity such as Notary Public and Commercial Registrar fees. A non-resident investor may obtain full Spanish tax exemption on foreign dividends and capital gains obtained through a Spanish Holding Company, while dividends distributed by the Spanish Holding Company from tax exempted income will not be subject to any Spanish withholding tax.