HEDGE FUNDS – SPANISH OVERVIEW
Jesús Mardomingo
Lawyer. Partner
Cuatrecasas, Gonçalves Pereira
September 2011
Introduction
Hedge funds, also known as alternative investment funds in Spain, have not a
unanimous
legal
definition
accepted,
although
there
are
certain
specific
characteristics related to this specific kind of investment funds.
Hedge funds are a type of investment funds which are mainly aimed at qualified
investors (banks, credit institutions, pension funds, insurance companies...etc.).
The investments restrictions applicable to ordinary investment funds are not
required to hedge funds, because these funds are able to invest freely in whatever
financial assets without diversification limits requires by the law on other collective
investment schemes (“CIS”), provided that the investment strategy would be
suitable for them.
Due to the possibility that hedge funds could choose freely their investments they
are less liquid and transparent, this circumstance implies a higher level of risk in
comparison to ordinary CIS.
The Spanish funds market is opening up significantly to new investment
possibilities, in a progressively more sophisticated, complex and worldwide financial
scenario. Unfortunately, the Spanish hedge funds market is not broad or active.
Currently, in the official registry of the Spanish Securities Exchange Commission
(“CNMV”)1 there are 30 hedge funds and there are 26 funds of hedge funds.
Furthermore, the assets under management of hedge funds are 600.940 million of
Euros and regarding funds of hedge funds are 447.345 million of Euros2.
Few hedge funds registered in Spain have a corporate form, since these funds are
commercialized as private banking financial products which are mainly aimed at
large fortunes.
1
2
The first hedge fund was registered with the CNMV on November 8, 2006.
These figures belong to 31, August, 2011 and have been obtained from the official statistics published by INVERCO.
1
As a consequence of the worldwide financial credit crunch, among others, the
number of hedge funds and funds of hedge funds registered in Spain decreased.
Comparing assets under management at the end of 2009 versus 2010, there was a
reduction of assets under management in both cases; specifically, hedge funds
decreased 0,89 % and funds of hedge funds 14,24 %.
Hedge funds have a limited number of potential investors due to the high initial
investment requirement (€50,000), and lesser liquidity, transparency and freedom
in choosing investments. These characteristics imply hedge funds are riskier
products and therefore this kind of funds is suitable only for sophisticated investors
who are concerned about the associated risks to these investments.
Regarding the legislative evolution of hedge funds, Act 35/2003, of November 4, on
Collective Investment Schemes (“LCIS”) repealed and replaced Act 46/1984, of
December 26 on Collective Investment Schemes. This new act tried to state a new
regime on CIS adapting it to the sector necessities. However, LCIS did not regulate
the specific legal regime applicable to hedge funds, being necessary to wait until a
future developing regulation. This regulation was approved in the year 2005
through Royal Decree 1309/2005, of November 4, approving the Regulation of
Collective Investment Schemes (“RCIS”). Particularly, section 43 and 44 of RICS
contain the regulation applicable to hedge funds and funds of hedge funds.
This regulation was completed by Order EHA 1199/2006 of Spanish Ministry of
Economy, of April 25 developing the Royal Decree 1309/2005, of November 4,
approving the Regulation of Collective Investment Schemes, regulating hedge funds
and funds of hedge funds which enable CNMV to adopt several provisions.
Consequently, CNMV approved Circular 1/2006, of May 3, of the CNMV, on
Alternative Collective Investment Schemes (“Circular 1/2006”) to detail the legal
regime applicable to this CIS.
Once it has been analyzed the hedge funds legal evolution, another important issue
that shall be considered is the use of side-pockets.
In Spanish regulation, side-pockets (compartimentos de propósito especial) are
allowed since 2010, when RCIS was amended. Side–pockets need to comply with
certain requirements and before their creation CNMV must be informed of this
decision.
Regarding the subscription and redemption regime of hedge funds, Spanish
regulation states that it is possible to provide for redemption gates, as long as this
circumstance is clearly indicated in the prospectus of the fund.
2
Another significant hot issue is the commercialization in Spain of funds which are
not harmonized under European legislation. The commercialization of nonharmonized hedge funds is possible under the private placement regime. However,
funds which are not
harmonized cannot obtain the benefits derived from the
special tax regime that applies to CIS set up in Spain.
Currently, European financial markets are progressively more dynamic in promoting
the use of these financial products. In July 2011, the European Commission
adopted the Alternative Investment Fund Managers Directive. This Directive aims to
establish a harmonized framework for companies managing alternative CIS; i.e.,
the CIS not harmonized under the EU Directive 611/1985, of December 20, on the
Coordination of Acts, Regulations and Administrative Provisions relating
Undertakings
for
Collective
Investment
in
Transferable
Securities
to
(“UCITS
Directive”) (including hedge funds, risk capital entities, and real estate CIS, etc.),
establishing standards for the authorization, ongoing activity, and transparency of
the management companies that manage and/or commercialize these funds in the
European Union (EU).
Additionally, a new UCITS Directive, known as UCITS IV, came into force in EU
Member States on July 1, 2011, modifying the legal regime applicable to CIS.
Consequently, in Spain LCIS will be amended in order to adapt its provisions to the
news implemented by this Directive (master-feeder structures, mergers, register of
UCITS investment funds, European passport of the management entities…).
Structuring Issues
In Spain, hedge funds and funds of hedge funds are specifically regulated under
RCIS, in sections 43 and 44 respectively, as well as in the Circular 1/2006 and
Order EHA 1199/2006, but the general legal regime stated under LCIS applies to
the issues not covered by RCIS.
a) Hedge funds formation and characteristics:
First of all, it is necessary to highlight that hedge funds and funds of hedge funds
can adopt two different forms: fund and corporation. In Spain, these funds cannot
adopt the form of trust or limited partnership.
The formation process does not differ from the general process to form other CIS,
except in minor details that are described below.
3
Regarding the investment fund’s constitution process, section 4 of the LCIS states
that an investment fund shall be set up, after obtaining the required authorization,
by one or more initial investments, which will be documented in a contract3 signed
between the management company and a custodian entity 4. On the other hand,
when the hedge fund is set up as a corporation, the formation process is the same
as any other commercial corporation, provided that the CNMV authorizes its
investment activity.
Regardless of the form of the hedge funds or funds of hedge funds it is necessary to
obtain prior authorization from the Spanish authority, the CNMV.
The application form to obtain the authorization from the CNMV must include a
memorandum, the accreditation of the managers and directors’ honesty and
professionalism, and in general all data, reports or information needed to verify
compliance
with
the
conditions
and
requirements
stated
under
the
LCIS.
Additionally, it shall be included in the case of investment funds: (i) the prospectus
and (ii) the management regulations, and, in the case of self-managed companies,
(i) an activity report including the organizational structure and (ii) the articles of
incorporation.
Particularly, section 43 of the RCIS states that the hedge funds’ shares and units
must be subscribed or acquired through a minimum initial payment of €50,000 and
should have a minimum of 25 shareholders or unit-holders. Additionally, the CNMV
may authorize hedge funds to establish minimum lock-up periods for their
shareholders or unit holders5.
Once the CNMV authorizes the establishment of these funds, both hedge funds and
funds of hedge funds will be included in a specific registry of in the CNMV.
These funds may be established as CIS with sub-funds and issue different shares or
unit classes, similarly as ordinary financial CIS. The existence of these sub-funds
3
Under Spanish legislation, it is optional to establish investment funds through issuing a public deed and having it
registered in the Commercial Register.
4
Particularly, under sections 10 of the LCIS and 8 of RD 1309/2005, to set up an investment fund, the following is
necessary (i) the CNMV’s authorization regarding the fund’s constitution project, (ii) the fund should be established, (iii)
the fund and its prospectus should be registered in the CNMV's Registries. Consequently, the documents that should be
sent to the CNMV for authorization to set up an investment fund are the following (i) the application form for
authorization and registration, (ii) memorandum explaining the fund’s purposes and objectives, (iii) the fund’s
management regulation, (iv) the constitution contract and (v) the fund’s prospectus.
5
This requirement must be included in the prospectus.
4
may improve the fund’s management, as sub-funds work as independent funds
with their own investment policies.
Moreover, very briefly other characteristics of hedge funds regime under Spanish
regulation are as follows:
a. Maximum leverage up to 5 x NAV; no limits on exposure in derivatives.
b. No specified restrictions on concentration/investments.
c. The NAV must be calculated quarterly. If required by a particular type of investment, it may be calculated twice a year. Subscriptions and redemptions
must be carried out with the same frequency. However, it is possible not to
allow the redemptions every time the NAV is calculated, if this is indicated in
the prospectus.
d. It is possible to set notice periods.
e. Lock-up periods and redemption gates are also permitted.
f.
There is no restriction on investment in any kind of financial assets,
irrespective of the underlying assets. The only requirement is for the
investment policy to follow the general principles of liquidity, diversification
and transparency, and to invest in securities.
As it has been mentioned above, there is a possibility to apply redemption gates in
which the investors will be able to redeem their investments. This circumstance
must be established in the prospectus according with section 43 d) of RCIS.
The same section of RCIS states that the limit of indebtedness of hedge funds may
not exceed five times the value of its assets. This fact must be contained
specifically in the prospectus. Moreover, the general limits of pledging assets set
forth under LCIS will not apply to hedge funds.
Furthermore, this section of RCIS also establishes the possibility of investment in
derivative financial instruments, whatever the nature of the underlying asset, and
attending to liquidity, risk diversification and transparency principles stated in the
LCIS.
b) Side-pockets:
Spanish regulation also permits the use of side-pockets. Section 45 bis of RCIS sets
out certain requirements. Before the creation of the side-pocket, CNMV must be
informed of this decision and subsequently the side-pocket is registered in CNMV.
CIS unit-holders should be notified in written form of this circumstance. Once the
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side pocket is created, only the CIS unit-holders at the time of the decision may be
issued side-pocket units.
Side pockets have to adopt the same legal status as the original CIS and have to
incorporate
assets representing more than 5% of the CIS assets. These
incorporated assets should imply a serious damage to the CIS. In general terms,
the legislation applicable to side-pockets is the same than to other CIS but with
some exception, for instance, they do not need minimum assets or prospectus,
they cannot produce commissions, etc.
c) Manager compensation and governance:
Under Spanish regulation, there is a free regime for types of compensation relating
to the hedge funds manager and the custodian. Particularly, section 43.h of the
RCIS states that the maximum and minimum limits and the calculation methods for
management, deposit, subscription and redemption fees applicable to ordinary CIS
do not apply to hedge funds.
Regarding the governance of these funds, Circular 1/2006 provides the specific
legal regime applicable to management companies and custodians.
Although Spanish legislation does not establish a new form of fund management
company exclusively for hedge funds, special requirements, such as capital
requirements, are imposed on this activity.
Circular 1/2006 regulates in detail the organizational and risk control resources
required for management companies. In particular, Circular 1/2006 states that a
management company must have an operations program explicitly stating that it
manages hedge funds, funds of hedge funds, or both, and describing its internal
control measures, which must cover its organization structure, the specific technical
and human resources it will have, and a general description of the specific controls
and procedures applicable to managing this type of CIS.
As it has been mentioned previously, an investment in this kind of fund involves a
higher risk than ordinary CIS, and therefore the regulation has more stringent
requirements for management and custody. Considering the increasing complexity
of and specialization in management of this kind of CIS, it is possible for
management companies to delegate some functions to other entities. Under this
circumstance, Circular 1/2006 has adopted the general regulation on delegation of
asset management and administrative features stated in the RCIS for hedge funds.
6
Comment [P1]: We are not referring to
a risk but a prejudice or detriment.
d) Prime brokers:
Regarding the investment activities of hedge funds it is essential to stress the role
of prime brokers. Prime brokers are financial entities, typically large investment
banks that offer sophisticated services to hedge funds, such as derivatives trading
and stock lending.
Prime brokerage services could be summarized as follows: (i) lending securities:
this is one of the most important services since it facilitates
short selling
transactions, providing the securities that the hedge fund must provide to the
buyer; (ii) clearing and settlement services;(iii) hedge fund startup services; (iv)
cash management; (v) capital introductions - asset raising; (vi) help build portfolio
management teams; (vii) act as a third party in marketing due diligence; (viii)
custody of assets; (ix) portfolio reporting…etc.
The activity carried out by the prime broker as a custodian of the hedge funds’
assets should be a global custodian service because of its geographic diversity and
the use of the prime broker’s sub-custodians. This circumstance implies a problem
regarding the liability associated with such activity. In this sense, section 62 of the
LCIS and section 92 of the RCIS establish as a general rule that the depositary will
be responsible for the custody of the assets of these institutions, even if the
custody of them has been assigned to a third entity.
In this sense, the Order EHA/596/2008, March 5th, which develops certain legal
aspects of the depositary of Collective Investment Institutions (hereinafter, the
“Order EHA/596/2008”), mitigates the responsibility of the depositary. According
to section 7 of the Order EHA/596/2008, when a CIS outsource the services, such
as funding, clearing and other financial services, and a prime broker takes control
of the assets of the CIS, the management company, or if applicable, the board of
directors of the CIS, must report to the depositary all the agreements undertaken
with the prime broker.
The aforementioned agreement shall include the following provisions, in order to
guarantee the custody function: (i) the prime broker’s obligation to provide to the
depositary with periodic information about the positions and valuation of the
portfolio transferred; (ii) the prime broker’s obligation to give information to the
depositary about the positions in the assets given as collateral; (iii) the prime
broker’s obligation to give information to the depositary about the clearing of the
7
operations fulfilled; (iv) submission of the granted financial guarantees to the
applicable rules; and (v) monitoring procedures to guarantee the property and
availability of the rights of the assets not given as collateral. In relation to assets
given as collateral, the depositary must supervise that the management company
controls the fulfillment of the guarantees and their restitution.
Notwithstanding, the Order considers that the depositary will not be responsible for
the custody of the transferred assets and supervised by the prime broker. The
prospectus must contain expressly mention the exclusion of the depositary’s
responsibility.
In these cases, the hedge funds’ management company must conduct a review to
confirm the prime broker’s solvency and professionalism. It is considered that an
entity is solvent when it has a favorable rating issued by a prestigious agency.
Management and custodian activity of hedge funds is subject to civil and
administrative responsibility. These entities’ activity is also subject to liability under
sections 46.4 and 62.2 of the LCIS. Both entities are required to demand
reciprocally the responsibility in the exercise of their functions on behalf of the
clients.
Regarding civil responsibility, the rules established in section 1101 and 1902 of the
Spanish Civil Code apply, making it necessary to prove loss attributable to the
management entity or custodian, loss for the investor and there must be a causality
link between circumstances.
Even in cases when the investors have signed a written consent form6, the
management and custodian entities are still responsible.
Regarding the administrative responsibility, section 69 of the LCIS states that the
management and depositary companies of hedge funds, as well as those with
administrative or management positions, will be administratively liable. These
entities will be also subject to responsibility derived from the infringements stated
under sections 80, 81 and 82 of the LCIS.
Management companies of hedge funds, as well as other entities providing these
services, must consider the risks arising from conflicts of interest, and therefore
should be organized to minimize these risks and prioritize their customers’
6
In accordance with the provisions of articles 43.j) and 43.f) of the regulation under the CIS Law.
8
Comment [P2]: We are referring to
require, ask for…
interests. In order to avoid these risks, it is essential to establish control and
supervisory mechanisms.
Also, under section 98.2 of the RCIS, the entities should include procedures in their
internal conduct code that ensure investment decisions are made before the order
is transmitted to the intermediary entity.
Regulatory Framework
As mentioned above, the CNMV is the Spanish regulatory authority in charge of the
registration and supervision of hedge funds.
In this sense, the CNMV should confirm the application within three months from
the date it is submitted. If an express resolution is not issued within five months,
the application will be deemed accepted through administrative silence. The CNMV
can only refuse to register a hedge fund, if the legal requirements are not met, by a
motivated resolution indicating which requirements are not fulfilled.
Regarding the cross-border commercialization of hedge funds in Spain, the
regulatory framework is established under the UCITS Directive.
Due to hedge funds’ specific characteristics, these kinds of products are not
harmonized under the UCITS Directive. Thus, it is possible to distinguish two
different legal regimes for the commercialization activity.
-
The UCITS Directive applies to the commercialization of open-ended hedge
funds.
-
Directive 2003/71/CE of November 4 on the prospectus to be published for
public offer or admission to trading and Royal Decree 1310/2005, of November
4, on Admission to Listing, Public Offerings and the Prospectus Required in such
Cases (“RD 1310/2005”) applies to the commercialization of close-ended
hedge funds.
As regards the cross-border commercialization of open-ended hedge funds, sections
15 and 15.2 of the LCIS state the registration procedure. However, the CNMV
considers that, because of their special characteristics, foreign hedge funds do not
comply with the requirements established in section 15.2 of the LCIS.
Regarding the cross-border commercialization of closed-ended hedge funds, under
section 2 of the LCIS, this rule does not apply to closed-ended hedge funds.
9
Therefore, closed-ended hedge funds are governed by RD 1310/2005. One of the
most attractive regimes applicable to closed-ended hedge funds is the authorized
forms of private placement, which are exempt from the prospectus requirement
applicable to a public offering. These exemptions are important in the field of hedge
funds. This regime, known in practice as private placement7, is regulated under
section 30 bis of Act 24/1988, of July 28, on Securities Markets (“SMA”) and in RD
1310/2005.
These assumptions allow products for qualified institutional investors not to be
subject to administrative procedures whose main purpose is to protect retail
Comment [P3]: We consider that the
correct word is “assumptions”.
investors.
The availability of private placements favors closed-ended hedge funds over openended hedge funds.
Marketing
Regarding the regulation of marketing activities, under the LCIS “commercialization
is defined as the customers’ raise, with advertising activities, for its investment in
the
Collective
Investment
Scheme.
The
advertising
activity
includes
all
communications with potential investors, to promote the acquisition of the
Collective Investment Scheme’s units”.
Comment [P4]: This is the definition
established in the LCIS section 2.
Section 43 b) of the RCIS states that the commercialization activities referred in
article 2.1 of the CIS may only be carried out when directed at qualified investors,
as defined in article 78 bis 3 of the SMA. However, non-qualified investors can
acquire shares or units, provided the minimum amount is paid and no active
commercialization is directed at them. This is an important issue relating to hedge
funds, as these kinds of funds are more appropriate for institutional investors
because they imply a higher level of risk than other CIS.
Taking into account this high level of risk, in such cases when if a non-qualified
investor requests these kinds of financial instruments, a written consent form, in
accordance with the provisions of articles 43.j) and 43.f) of the regulation under the
7
The following offers can be considered private placement:
a)
An offer of securities addressed exclusively to qualified investors. Qualified investor has the meaning
expressed in the Prospectus Directive as implemented into Spanish law by section 39 of RD1310/2005; or
b)
An offer of securities to less than 100 investors in Spain, other than qualified investors; or
c)
An offer of securities addressed to investors who acquire securities for a total consideration of each offering
of not less than €50,000; or
d)
An offer of securities whose denomination per unit amounts to at least €50.000; or
e)
An offering of securities for a total issue amount below €2,500,000 during a period of 12 months.
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CIS law, will be required, in which the investor acknowledges its awareness of the
risks inherent to investing in hedge funds.
Compliance
a) Conduct rules
Currently, due to the European Financial Regulator’s growing concern to protect
investors, several conduct rules have been approved relating to the CIS, including
hedge funds.
Section 65 of the CIIS states that the conduct of business rules applicable to hedge
funds and to funds of hedge funds are applicable to management companies of
CIIS, to depositaries, to self-management SICAV’s and to all those involved in
these institutions’ activity.
In this sense, these institutions must respect the conduct of business rules
established in Spanish legislation, specifically under chapter V of the LICS, Title VII
of the SMA, business conduct codes approved by the government, as proposed by
the CNMV, and their internal conduct of business regulations.
In particular, under the SMA and Royal Decree 217/2008, investment services
providers must respect the conduct of business rules envisaged under Spanish
legislation. Specifically, persons and institutions that commercialize hedge funds
are subject to the client related to transparency and diligence obligations
stated
under the SMA, which are defined as the MiFID Directive’s obligations due to its
implementation of the Spanish regulation. Firms that provide investment services
must behave diligently and transparently in the interests of their clients,
safeguarding those interests as if they were their own.
b) Capital maintenance
Spanish legislation stipulates under section 4.4 of Circular 1/2006 that, to better
cover operating risks, the management companies of hedge funds must have a
minimum amount of share capital and 4% of the gross fees revenues they obtain
from managing the CIS. The capital requirements for this calculation will be the
average of the last three years.
c) Reporting/filing obligations
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Hedge funds, as any other CIS, must provide a full and a simplified prospectus with
information on (i) the subscription, redemption (frequency of the net asset value,
estimated net asset values, mechanisms and dates for subscription; redemption
and periods of advance notice and payment of redemptions; possibility that the
calculation of the net asset value may be delayed and the possibility and conditions
of redemption in kind), (ii) the general policy on collateral, (iii) general information
about agreements to outsource functions, (iv) general information about advisory
contracts, (v) information about the CIS's investment and management strategy,
(vi) the special risks that they may entail, and the criteria for concentration and
diversification that may be relevant for assessing the potential risk, (vii) policy of
investment in liquid assets and of managing liquidity to cater for redemptions, (viii)
the limit of indebtedness and the additional leverage through repos, simultaneous
financing,
financing
for
securities
lending
and
operations
with
derivative
instruments, (ix) the criteria for valuing the assets in their portfolios and (x) the
maximum accumulated level of management and depository fees.
Regarding periodic reporting, the criteria applicable are the same as those for
ordinary CIS; therefore, hedge funds must provide annual, half-yearly and
quarterly reports complying with certain provisions.
Before the subscription, the simplified prospectus and the last semi-annual report
must be sent to the investors, free of charge. Investors may request other
documents. After the subscription, the annual and semi-annual report must be sent
to investors periodically, free of charge.
The hedge funds’ relevant facts must comply with the general ordinary CIS.
d) Anti-money laundering
Regarding anti-money laundering (“AML”) and anti-terrorism reporting obligations,
to the extent that hedge fund management companies are obliged entities from the
AML perspective, they must cooperate with the Executive Service of the
Commission
for
the
Prevention
of
Money
Laundering
and
Financial
Crime
(“SEPBLAC”). In hedge fund activity, the AML risk would be mainly associated with
the origin of the funds.
There are two different kinds of reports: (i) suspicious activity reports and (ii)
periodical reports.
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Suspicious activity reports imply that obliged entities must immediately notify
SEPBLAC it of any signs or certainty that a customer or a transaction is or appears
to be linked to money laundering or terrorism financing.
The Spanish regulation establishes the additional obligation of a periodical report, in
which obliged entities must notify SEPBLAC on a monthly basis of any transactions
that fall under section 7 of Royal Decree 925/1995. These transactions are the
following:
a. Transactions involving the physical movement of (i) coins, (ii) banknotes,
(iii) travelers checks, (iv) checks or (v) other bearer documents delivered by
credit institutions (except if there is a credit or debit movement in a client’s
account that exceeds €30,000 or the equivalent in foreign currency).
b. Transactions with (i) natural persons or legal entities resident in territories
or countries designated by a Minister of the Economy’s order, or parties
acting on their behalf; and (ii) transactions involving transfers of funds to or
from these territories or countries, regardless of the residence of the involved parties, if the amount of these transactions exceeds €30,000 or the
equivalent in a foreign currency.
Periodical reports should mention thresholds, origin or destination, or the
nationality of the final clients involved. Even if there are no transactions to
communicate, hedge funds should report biannually to the SEPBLAC.
Moreover, cross-border cash8 movements are also subject to reporting obligations.
Although movements of capital across Spanish borders are fully liberalized, both
internal and cross-border cash movements are subject to prior (or simultaneous)
reporting obligations: (i) intra-border movements over €100,000 (per movement)
and (ii) cross-border movements over €10,000 (per person, per trip). Both types of
movements must be reported using S-1 forms.
Regarding the disclosure obligations, in general terms, persons subject to the
Spanish AML regulation must not disclose actions they have taken regarding their
obligations to prevent money laundering and terrorism financing to the customer or
to any third party, and they must keep the transactions subject to analysis, or
which have been reported to the SEPBLAC, strictly confidential.
8
For this purpose, “cash” includes coins or bank notes, bank checks, or any other physical support –including e-money
cards- that can be used as a form of payment
13
However, AML legislation expressly establishes that, when it is not possible not to
carry out a transaction, or, if doing so could make it difficult to investigate the
transaction, the obliged entities may carry out the transaction, sending an urgent
report to the SEPBLAC immediately afterwards; the SEPBLAC has interpreted this
as an exceptional case that only applies in very limited situations.
Tax issues
Tax aspects are also important in any decision to invest in hedge funds, having
regard to the tax burden applicable to corporations and natural people, which has a
substantial difference between countries.
According to section 28.5 of the Legislative Royal Decree 4/2004, of March 5, on
the Corporate Income Tax, CIS set up in Spain are subject to a tax rate of 1%
provided that the specific requirements established under this section would be
fulfilled.
The shareholders or unit-holders of hedge funds set up in Spain and regulated by
LCIS are subjected to a special tax regime in the Spanish regulation. A shareholder
or unit-holder must integrate into the basis of tax assessment the dividends and
profit derived from hedge funds’ shares or units, as well as profits or losses arising
from the transfer or redemption of hedge funds shares or units. The tax rate
applicable will be 19% for the first € 6000 and 21% for the remainder .
Likewise,
and
under
some
circumstances,
personal
income
tax
legislation
establishes a system of deferred taxation of shareholders or unit-holders, if the
amount obtained as consequence of the redemption or transmission of the shares
or units will be designated to the acquisition or subscription of other shares or units
of CIS. The new shares or units keep the value and acquisition date of the shares or
units redeemed or transmitted.
Legal persons, residents or non-residents with permanent establishment should
incorporate in their basis of tax assessment the dividends and profits derived from
shares or units, as well as the profits from the transfer or redemption of shares or
units in hedge funds. In these cases, the tax rate applicable will be 30%.
Finally, the profits of non-residents without permanent establishment, as well as
the dividends and profits derived from the transmission or redemption of the shares
or units of Spanish hedge funds obtained by non-residents without permanent
establishment will be taxed at 19%.
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