A clear trend: improving the tax treatment of outbound and inbound investments
Changes to Spain's tax legislation over the last few years have paved the way for continuous improvements in the tax treatment of international investment flows.
Thus, for example:
in 1992, an underlying tax credit mechanism was introduced (subsequently improved in 1995 and 1996);
in 1996, an attractive holding regime (ETVE) was put in place;
in 1996, an optional foreign tax credit on qualifying dividends (equivalent to an exemption) was created;
in 2000, the Canary Island special tax regime was finally approved; and
in June 2000, new tax preliminary measures on outbound investments were enacted.
The June 2000 measures involved:
the introduction of a full exemption system for foreign-source dividends and capital gains (on the disposal of subsidiaries) and for the income of permanent establishments;
a significant relaxation of the ETVE regime;
an extension to 10 years of the period for carrying forward the existing three-tier underlying tax credits;
more favorable treatment of employees transferred to third countries, and
a tax deduction (deferral) for certain types of Spanish investments abroad.
Although most of the international tax measures had been introduced in the course of 2000, the year-end tax legislation also included some provisions that followed the trend of previous months and years. More precisely:
Law 6 2000, of December 13, approved as law all the preliminary legislation introduced as Royal Decree Law in June 2000, and in the process clarified certain points;
the annual budget legislation introduced a reduction (from 25% to 18%) of the tax rate applicable to dividends and other types of income obtained by non-residents; and
on January, 2001, the Official State Gazette published three new tax treaties (with Israel, Cuba and Norway), enhancing the already significant Spanish treaty network.
Spain has thus continued to establish a very attractive framework for international investment.
