Spain: Related Information
Venture Capital Funds
Although the venture capital sector in Spain has grown rapidly since the government introduced some tax concessions in 1999, there has been a heavy concentration on mature firms, and Spain has traditionally had one of the smallest shares of venture investment in seed and start-up enterprises among OECD countries.
The major share of private equity investment goes to expansion-phase companies, which typically account for 60% to 70% of both capital invested and total deals.
Spain has had difficulties channelling venture capital investment to early-stage companies. Returns from companies in these stages are generally perceived as too low relative to their more mature counterparts, particularly given their risky and illiquid nature.
The current investment culture in Spain does not tolerate a high number of failures in a venture fund. According to a December 2003 OECD report, there is a need for capital gains tax incentives to be introduced for individual investors if these problems are to be overcome.
The government indeed improved the CGT regime in its Law 62/2003 in December 2003, and perhaps as a result, figures for 2004 showed a more promising picture, with 55% of Spanish VC investment directed towards early-stage financings.
To qualify for the fiscal benefits that attach to Spanish venture capital funds a corporate entity must meet the following criteria:
- Minimum Share Capital: The VCF must have a share capital of a designated amount, of which at least 50% is paid up on incorporation with the other 50% is paid up within 3 years.
- Assets: 60% of the VCF assets must be either participating shareholdings in target companies or shares in other companies.
- Administrative Approval: To qualify for the special fiscal regime a VCF must obtain prior administrative approval and must register itself both in the Mercantile registry and with the Ministry of Economy & Finance.
Further information on the venture capital regime in Spain can be found on the Spanish Venture Capital Association website.
VCF enjoy the following fiscal regime:
- Corporate Income Tax: Dividend income remitted by target companies to the VCF is exempt from corporate income tax in the hands of the VCF. Spanish corporate income tax stands at 30%.
- Capital Gains Tax: Any capital gains made by the VCF on the profitable sale of shares in target companies are 99% exempted from capital gains tax in Spain provided the shares have been held for a period of 3 -10 years. Spanish capital gains tax stands at 30% (capital gains are taxed at the corporate income tax rate). If the sale of shares occurs outside this period there is no relief from this tax. This regime was considerably improved by Law 62/2003 in December, 2003.
- Withholding Tax: Outgoing dividends (and other profit distributions) remitted by the VCF to its shareholders are exempt from withholding taxes.