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How to pay no tax when selling a Spanish startup

As an entrepreneur, one needs to carefully consider his or her exit strategy. Some entrepreneurs will build a business to own for life as a lifestyle choice. Some will elect to build a fast-growth business and hope to one day sell it.

Whichever your aim is, you should carefully consider your tax implications before creating your structure, as thinking about it too late may result in large tax exposure.

Note that I am not an accountant nor a lawyer, and this post explains the very basic of what I learned. You should definitely seek qualified advice, and if you want the name of a fiscal expert I can provide that.

This post is intended for entrepreneurs creating a startup in Spain with the purpose of selling it later.

When incorporating a Spanish SL, the most common strategy is to put yourself and your partners as direct shareholders of the SL. Upon selling the startup however, you will be faced with paying 23% in Capital Gains Tax if you are standard Spanish tax resident, and 24% if you are a foreigner subjected to the so-called Beckam regime.

As it turns, out, there is a cheap and incredibly powerful way of reducing these taxes to up to 0%. You can do this by using a Spanish holding company.

So here is how this works:

  1. Create a Spanish SL that will be your holding company. Let's call this company HLD SL.

  2. Create the Spanish startup SL for your startup, where your shares are owned not by yourself, but by HLD SL.

  3. The day that you sell your startup, if HLD SL holds more than 5% of the shares at the time of the sale, HLD SL will pay no tax on selling its shares.

Ok great, but how do I take the money out of the SL you might ask?

To take money out of the holding company, you will typically have to pay 23% tax.

However, you have to consider that you only take money out of the company to live. That is to say, if you need money to buy food, to go on holiday or to buy yourself a Ferrari then you will pay 23% tax on this money. But if you intend to buy real-estate or make other investments in stock market or startups for example, then you can make these investments with your holding company without having paid any tax on it.

Neat no?