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.
Qualifying
Preconditions
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.
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Fiscal
Incentives
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.
Spanish venture
capital regulations were updated in 2005/06. For further
information on the effect of these updates, please see
here.
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