This document analyses the applicable tax regime to different types of investment funds
This document analyses the applicable tax regime to different types of investment funds.
The application of a tax rate of 1% or 0% is the main characteristic of the tax regime of the different regulated vehicles under Corporate Income tax. This special tax regime is based on the principle of tax neutrality, which allows investors to defer taxation of income derived from investments until dividends are received or there is a transfer or redemption.
Foreign investment funds may be eligible for the application of the double-taxation agreements signed by Spain when it is considered an “individual”, it is a “resident” in its home country and it is the “actual beneficiary” of the income generated in Spain, as provided for in the Official Commentaries to article 1 of the OECD Model Tax Convention. A foreign investment fund will not be considered a tax resident in Spain even if its management company is a tax resident in Spain.
Subject to specific requirements, income obtained by venture-capital funds from the transfer of their shareholdings will qualify for both double-taxation exemption and 99% partial exemption on Corporate Income Tax. Dividends will be exempt, regardless of the percentage of ownership and the holding period.
Individuals subject to Personal Income Tax may benefit, under certain requirements, from a special tax-deferral regime for transfers of units or shares in registered investment funds, a benefit that is not granted to direct investment in securities. Under this regime, taxation of income will be deferred until a definitive transfer or redemption of shares or units takes place. This deferral rule is also applicable to investment in foreign registered investment funds that comply with the UCIT Directive.
Positive unrealized income in foreign investment funds domiciled in tax havens is not granted with the special tax deferral regime and must be allocated in the taxable base on an annual basis.
Dividends and capital gains obtained by Corporate Income Tax taxpayers deriving from venture-capital entities may be eligible for double-taxation exemption regardless of the percentage of the shareholding in the venture-capital entity and the holding period.
According to the doctrine issued by the Spanish tax authorities, carried interest qualifies as corporate income (if obtained by a Corporate Income Tax taxpayer) or employment income or income from economic activity (if obtained by Personal Income Tax taxpayers), even if income derives from the holding of classes of shares that entitle special remuneration rights.
Published by International Fiscal Association, Cahiers de Droit Fiscal International, Volume 104 B: Investment Funds. Report drafted in May 2019 in connection to the 73rd IFA Congress held in London, September 8-12, 2019.