Introduction

The Traspasos regime is part of the Spanish Personal Income Tax law that allows investors to defer their capital gains tax liabilities when transferring from one fund to another. 

Mutual funds in Spain currently qualify for the regime while ETFs do not. Therefore, investors can move assets between mutual funds without paying a 19% tax on any profits made. 

Capital gains tax is still payable for Spanish mutual fund investors when they withdraw their funds completely, however, not paying on every transfer means they can benefit from compound growth. 

ETFs do not qualify for Traspasos so investors have to pay capital gains tax when moving to another fund. 

As a result, ETF investors are unable to benefit from the same compound growth as mutual funds, making this a significant barrier to growth for the wrapper in Spain. 

While ETFs listed on the Spanish stock exchange cannot benefit from the regime, those listed across the EU have been able to since 2016. 

However, the introduction of the anti-tax fraud laws by the Spanish government in January 2022 meant ETFs listed outside of Spain also no longer benefit. 

Tax implications

Fund selectors in Spain are more likely to use index funds due to their tax advantage, resulting in the ETF wrapper having one of the lowest penetration rates in Europe. While ETF adoption is increasing in the region, investors still have concerns about the tax implications. 

While investors using ETFs as part of their core portfolio will implement a buy-and-hold strategy, the Spanish tax regime hinders one of the key tools of the wrapper – being able to take tactical short-term view via the ease of intraday trading. 

The tax regime is one of the main reasons why Spanish investors may prefer to adopt index funds instead of ETFs as they avoid paying taxes during the life of their investments. 

The regime has also impacted the growth of ETFs listed locally in Spain. Only five ETFs are available on the SIX-owned Bolsas y Mercados Espanoles, with monthly trading volumes of €100m. By contrast, Deutsche Boerse, one of Europe’s biggest ETF trading hubs, saw €12.8bn traded in September. 

Iberia: A growth market for ETFs

The ETF wrapper’s ineligibility for the Traspasos continues to weigh on its uptake in the region, however, investors are starting to realise the additional benefits associated with ETFs. 

According to a survey by BlackRock and YouGov, the Iberian region of Spain and Portugal is one of the fastest growth areas in Europe for the ETF wrapper, with an additional one million people set to start investing in ETFs in 2024.