Mexico has become a target for European investors. Recently we focused on how Spain is a useful bridge to step into the wide Mexican market, not only because both countries share the same language and culture, but also because of some privileged institutional relationships between both countries. According to the World Bank, Mexico is at 15th position in the global ranking of Direct Investments receptors, mostly focused in the financial, automotive, electronics and energy sectors. Germany and Italy are in 5th and 7th position as main suppliers.
In this brief article we simply highlight why using a Spanish Holding Company (ETVE in the Spanish acronymic) could be the best way for an European investor to step into the Mexican market as a direct investor.
What is a Spanish Holding Company ?
A company incorporated in Spain as a limited liability company (both SL or SA) whose purpose is the tenancy of foreign shares and securities, that benefits from a special tax regime established by the Spanish Legislation, upon the fulfilment of certain specific requirements. In brief, the Spanish Holding Company is tax exempted from incomes obtained from its participated companies, disregard the location of its subsidiaries.
Why to use a Spanish Holding Company when investing in Mexico ?
Mexico has a wide range of Double Taxation Treaties under the standard model of tax convention of the OCDE.
Despite of the moderate tax rates on Withholding Tax applicable to the standard incomes, a parent company receiving from its subsidiary in Mexico dividends, interests, royalties or arising capital gains, will be retained easily in Mexico at range from 5 % to 10 % of Withhholding Tax, to be offset to the taxation at destination, that is, the one of the European Parent Company. Nothing new until now.
But…Adding a Spanish Holding Company as a bridge between the European investor and the Mexican entity (either permanent establishment or participated local company) would avoid any taxation on the incomes coming from the Mexican business.
The Spanish Holding Company will be totally exempted in its Corporate Tax in all the incomes deriving from its participated. If we consider that the average of the Corporate Tax in Europe goes somewhere in between 12,5 % (Ireland) to 38 % in France, locating the profits obtained from the Mexican investments in Spain may imply a non insignificant cut on tax burden.
Who should be considering a Spanish Holding Company ?
ETVE is highly interesting for private individuals or companies from the EU planning to approach Mexico (or any other Latin American markets), at a close to zero taxation.
More information upon request.
Tax Department
ESTUDIO JURIDICO DE LA VEGA & ASOCIADOS