Taking advantage of investment opportunities in Spain and

Taking advantage of investment opportunities in Spain and the “golden visa” immigration program Margarita Fernández Esther Hidalgo Jesús Conde Miami, 19 March 2014 Baker & Mc. Kenzie Madrid, S. L. P. forma parte de Baker & Mc. Kenzie International, una Verein de nacionalidad suiza a la que se encuentran asociadas firmas de abogados de diversas nacionalidades. De acuerdo con la terminología comúnmente utilizada en organizaciones prestadoras de servicios profesionales, cualquier referencia a un "socio" se entenderá hecha a un socio o figura equivalente de este despacho o de otra firma legal asociada a Baker & Mc. Kenzie International. Del mismo modo, toda referencia a una “oficina” se entenderá realizada a cualquiera de las anteriormente mencionadas firmas de abogados. © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

General introduction to Spanish market © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

General Overview of the Spanish Market q Deleveraging in Spain due to: • Pressure of financial markets on public debt • Restructuring of the Spanish financial system and pressure in the solvency ratios • Lack of liquidity q New investment opportunities in Public and Private Sector, including real estate assets and industrial companies in sectors with high technological value added and significant level of R&D: ICT, environment and water treatment, biotechnology health sciences, aeronautic and aerospace and renewable energies, etc. © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 3

General Overview of the Spanish Market (II) q The Spanish Government has special interest on attracting foreign investment: • • Foreign investments have duplicated in 2013 Residence by Investment Program came into force on September 30 to encourage foreign investors (non EU and non EEA nationals) to invest and set up new businesses in Spain • New specific vehicles for real estate investment (FABs, REITs, etc. ) with favorable tax treatment foreign investors q Spanish market prices are currently at its bottom level, but latest economic and sectorial data show the country is in the path to recovery © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 4

Investing in Spain © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 5

Investing in Spain - Attractive aspects to invest in the country – Increase of competitiveness of Spanish companies – Low inflation rate – Strategic location for key markets in Europe and Latin America – Excellent communication network: 47 airport, 46 seaports, best network of freeways in Europe, large rail network (including high speed trains) – Highly qualified workforce – Multicultural country with growing immigration population – Superb lifestyle: rich history and cultural heritage, unique cuisine, excellent health care system, wonderful climate and coastline © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Investing in Spain - Main EU investments in 2013 and 2014 ü ü ü ü Crown Holding: 100% Mivisa BRS investment fund: 100% Gamo Revlon: 100% Colomer Carefusion: 100% Sendal Group Apollo: 100% Evo Bank and 100% Finanmadrid Symantec: 100% Password Bank Intel: 100% Indisys © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 7

Investing in Spain - Main EU investments in 2013 and 2014 ü ü ü Bill Gates: 6% FCC and 3% Prosegur George Soros: 3% FCC Fintech: 5% Sabadell Bank Goldman Sachs: 20% Endesa Fidelity: 1% IAG and 1% NH Hotels Black. Rock: 5% NH Hotels © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 8

Investing in Spain - Main investments in real estate in 2013 and 2014 ü G. Soros and J. Paulson: € 92 millions of Hispania stock ü Goldman Sachs: 2, 935 apartments throughout Spain (€ 201 million) ü Blackstone Group: 18 apartments in Madrid (€ 125. 5 million) + 100% Catalunya. Caixa Inm. ü Kennedy Wilson/Väede: 51% Aliseda ü Apollo: 85% Altamira ü TPG: 51% Serbihabitat Gest. Inm. ü Fortress: 2, 000 apartments ü Cerberus: 100% Bankia Habitat © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

High level overview of the Spanish real estate market © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Real Estate opportunities in the private sector © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 11

Real Estate opportunities in the private sector § The Real Estate Market is currently subject to adjustment process due to: Ø Cash needs, leading to a price reduction trend Ø New legal framework for Spanish banks (which are the major real estate owners in Spain) Ø Creation of a SAREB, a special purpose entity having been transferred assets owned by certain banks § Specific good opportunities foreign investors due to the lack of liquidity, the insolvency proceedings, the restructuring of the local financial sector and the creation of new specific vehicles (FABs, etc. ) © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 12

Real Estate opportunities in the private sector § Specific opportunities arising from the previous refinancing process: the banks are currently the major shareholders of the main real estate companies § Colonial § Metrovacesa Companies specialized in office § Reyal Urbis and retail assets § SAREB will own stakes of real estate and other industrial companies § Lack of liquidity and insolvency proceedings © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 13

Residence by Investment Program © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Residence by investment programs- overview § Residence is part of the tax planning since it allows the tax payer to establish a legal residence outside his former home country and may also facilitate the circulation of the investor around the world. § Some countries “sells” citizenship, others offer a residence permit which may allow the individual to obtain the citizenship after a defined number of years. Caution: some countries do not allow dual citizenship. § A number of European countries have introduced residence by investment programs © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 15

Residence by investment programs. Overview § Some European residence by investment programs: Cyprus, Greece, Hungary, Ireland, Latvia, Lithuania, Malta, UK(and quasi-UK Islands such as Isle of Man, Jersey and Guernsey), Portugal, Spain. Some of them grant access to Schengen Area, other do not § Other residence by investment programs: Argentina, Australia, Antigua&Barbuda, Argentina, Canada (almost closed), Costa Rica, Dominica, Panama, Singapore, St. Kitts&Nevis, US, etc. Some of them leads to citizenship, others do not. © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 16

Immigration aspects of Spanish Golden Visa © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Special Investor Residence Visa – Specific features – Special investor residence visa (“Golden Visa”): resident status that leads to obtaining a resident permit and which allows the investor to freely circulate along the Schengen territory – Duration of the initial investor residence visa: one year – Applicable to non EU or EEA nationals who invest a determined amount of capital – Investment can be made either directly as an individual or through a company controlled by the individual, not located in a tax haven jurisdiction (Annex 1) © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Special Investor Residence Visa – Specific features – Compliance with money laundering and terrorist sponsorship regulations – Specific documentation must be issued to prove the capital investment made – In all cases, the foreign national's family members (spouse and children under 18 years old or over such age that for health reasons are financially dependent) may also obtain the Golden Visa with no additional investment being required © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Special Investor Residence Visa – Amount of the investment – Purchase of real estate in Spain (i. e. offices buildings, residential properties, vineyards, castles, etc. ) at least 500, 000 euros value, free of charges or mortgages, or – 1, 000 euros in shares in Spanish companies (listed or unlisted) or deposits in Spanish banks, or – 2, 000 in national debt titles or © 2013 Baker & Mc. Kenzie Madrid, S. L. P. – Business projects in Spain considered of public interest 20

Conversion into a Residence Permit – The investor that has obtained a residence visa can obtain a residence permit valid for 2 years, which can be renewed for subsequent 2 years periods as long as the investment is maintained – The investor must only enter in Spain one day within the visa's validity whereas to obtain standard legal resident status the individual must stay in Spain for at least six months in the year – The “golden visa” is a de facto permanent residence, since it allows to also work in Spain. © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 21

General tax aspects for the investor © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Tax residency status v Investors can remain tax residents outside of Spain because there is no obligation to spend a minimum amount of time in Spain to benefit from the Golden Visa v Investors will acquire Spanish tax residency if: – They remain in Spanish territory > 183 days during the calendar year or – The main center of their economic activities or interests is directly or indirectly located in Spain © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 23

Non Residents in Spain Investors that do not become residents in Spain will only be taxed in Spain on Spanish source income, in accordance to Spanish domestic legislation and Tax Treaty provisions, if applicable – Taxation depends on the nature of the income obtained and tax residency of investors – Low tax rates apply for dividends, interests and royalties obtained by investors resident in Tax Treaty countries (see attached list). Capital gains may be tax exempt or taxed at 21%, depending on Tax Treaty (except quotes shares if seller resident in a Tax Treaty country) © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 24

US Resident Investors Type of income Capital gains from sale of real estate property Capital gains from sale of shares: - If participation lower than 25%: Otherwise: Shares of real estate companies: Revenues from Treasury bonds Dividends Current Tax Treaty 21% 21% 0% 0% 10% or 15% (participation more or less than 25%) Interest: Real estate income © 2013 Baker & Mc. Kenzie Madrid, S. L. P. New Protocol 0% (more than 80%), 5% (more than 10%) 15% (less than 10%) 10% 24, 75% 25

Residents in Spain v Spanish resident individuals are taxed on their worldwide income: progressive rates for ordinary income (up to 51. 5056%) and up to 27% for capital source income and longterm capital gains § Tax rates reductions expected as of 2015 v Individuals might be taxed on their worldwide net assets (Net Wealth Tax), although this tax can be avoided depending on the region of residence (e. g. Madrid) § Net Wealth Tax will likely be eliminated as of 2015 v If also taxed abroad, individual will be entitled to a tax credit for the taxes paid abroad, subject to certain limits (tax payable in Spain) © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 26

Specific tax efficient investment vehicles Spanish REITs (“SOCIMIs”) v Public Limited Companies (S. A. ) v Main corporate purpose: acquisition/promotion of urban real estate for leasing (also participation in other REITS) v Minimum share capital: Euro 5 MM v Minimum of only 1 property v Mandatory trading v No debt restrictions apply v Require 3 years of maintenance and mandatory distributions to its shareholders on an annual basis (from 50% to 100% of the profits resulting from their activities) © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 27

Specific tax efficient investment vehicles Spanish REITs (“SOCIMIs”) v SOCIMIs taxation § 0% tax rate Corporate income tax (CIT) for qualifying income § Exception: Special 19% tax rate on the amount of dividends distributed to shareholders holding 5% or more of share capital, either exempted or taxed at the level of the shareholder at rate lower than 10% v Shareholders´ dividends: tax burden is shifted to the investor § Foreign investor without PE: general rules apply and taxed in accordance to Tax Treaty provisions § New Spanish-US Protocol: more restrictive regime: 15% if participation lower than 10% (otherwise 21%) © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 28

Specific tax efficient investment vehicles – Bank Assets Funds (“FABs”) ü Purpose: To market SAREB (Bad Bank) assets ü FABs are a separate group of assets without legal personality ü Hybrid: asset securitization funds/Collective Investment Vehicles ü Advantages: Flexibility and Favorable tax regime: – CIT: 1% – Foreign investors without PE: 0% taxation on income obtained. – Other participants: like partners in Collective Investment Vehicles © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 29

Baker & Mc. Kenzie Services © 2013 Baker & Mc. Kenzie Madrid, S. L. P.

Baker & Mc. Kenzie services – We have multidisciplinary teams of lawyers specialized in the different areas of business law (tax, real estate, M&A, banking, immigration, etc) with sound knowledge of legal trends and business and industry issues, as well as extensive experience in local and cross-border operations – Our key resources in providing high quality advice are our ability to manage multidisciplinary projects and to seamlessly execute them – We offer our clients practical solutions – We have good contacts with different areas of the Spanish Administration © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 31

Baker & Mc. Kenzie services Tax Services – Tax planning on the investment for both the vehicle and the final individual investor – Tax advice on day-to-day issues and tax compliance – Tax advice during investment period and alternatives to disinvest © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 32

Baker & Mc. Kenzie services Real Estate and Corporate Services – Providing contacts with major real estate consultants and real estate owners – Providing advice in all kind of real estate investments and any other real estate-related transactions – Providing assistance in any post-investment arrangements regarding the purchased property © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 33

Baker & Mc. Kenzie services Financial Services Regulations Services – Analysis of financial assets eligible for the purposes of the Golden Visa – Assistance to obtain the documentation that the Spanish intermediary involved in the transaction may request for antimoney laundering purposes – Assistance to complete regulatory reporting requirements in Spain (depending on the type of asset object of the investment) – Assistance to find an Spanish eligible financial intermediary that must participate in the transaction and help to structure the relationship with the same © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 34

Baker & Mc. Kenzie services Immigration Services – Advice on the Golden Residence Visa Program: § Advising on procedure and documentation required § Preparing documentation and application forms § Obtaining appointments § Filing of application on the individual´s behalf § Follow Up of applications § Assistance on all stages of the process © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 35

Annex 1: Tax haven jurisdictions © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 36

Annex 2: Tax Treaties in force © 2013 Baker & Mc. Kenzie Madrid, S. L. P. 37