Spain's 2015 tax reform approved: What foreign investors and M&A players should know

The Spanish Parliament has finally approved the bills proposed by the Spanish Government which include significant amendments to Spanish Corporate Income Tax, Personal Income Tax, and also minor changes with respect to VAT and taxation of non-residents (the "Tax Reform"). The bills were published in the Spanish Official Gazette on 28 November 2014, and will come into force as of 1 January 2015.

In the attached note we summarize the main aspects of the approved Tax Reform that could be relevant for foreign investors and M&A players with interest in Spain.

The following are the main changes approved by the Parliament to the draft bills submitted by the Government:

  • Tax deductibility of acquisition debt in LBO transactions: it has been clarified in which circumstances the "anti-LBO" tax provision does not apply
  • Participation exemption on dividends: the requirements when the subsidiary paying the dividend is a holding company have been clarified
  • Use of carried forward tax losses: the percentage of the taxable income that can be offset with carried forward losses has been increased form 60% to 70% (except in 2016)
  • Spanish tax grouping regime: Certain transitional rules have been introduced to clarify the "degrouping" rules
  • Taxation of capital gains obtained by EU corporates on Spanish shares: EU resident corporates shall now be exempt on capital gains derived from a substantial (≥25%) participation in a Spanish entity if the requirements for the participation exemption are met (unless the assets of the Spanish entity consist mainly, directly or indirectly, of immovable property located in Spain). This is particularly relevant for corporates resident in EU jurisdictions with a tax treaty with Spain which allows Spain to tax this capital gain (for example, the Spain/France tax treaty)
  • Taxation of capital gains obtained by Spanish resident individuals: The capital gain reduction coefficients applicable to transfer of assets acquired before year 1994 are maintained, but can apply only to transfers up an aggregated transfer value of €400,000
  • Taxation of non-resident individuals: Spanish Wealth Tax and Inheritance and Gift Tax applicable to EU residents are adapted to EU Law, and now they could take advantage of tax reliefs approved by the Autonomous Regions where the assets or rights are located.

To read the full article, please open the attached pdf. 

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