A relative newcomer to alternative investment funds, Spain offers both opportunities and challenges when setting up a new fund. We share insights about this attractive domicile for foreign investors.
Spain is an appealing business location, with a growing economy, favorable tax environment, and easy access to the European Common Market. The country is one of the world’s most advanced economies and offers private investment opportunities in both established and new industries, including agriculture, real estate, and clean energy. Like any investment destination, there are both opportunities and challenges to setting up a fund in Spain.
Favorable tax environment
Alternative investments are growing in Spain, and private equity activity reached record highs over the last few years, supported by 2014 laws that introduced a favorable tax regime. Investment funds can benefit from certain tax treatment and exemptions, which vary depending on the fund type. Spain also has double tax treaties with more than 90 countries, making it an attractive destination for foreign investors.
In 2019, the United States and Spain amended their bilateral tax agreement to prevent double taxation of each other’s nationals and firms and improve information sharing between tax authorities. In late 2023, the U.S. Department of State reported that the U.S. is the largest investor in Spain in new foreign direct investment, which amounted to €9.4 billion in 2022.
Navigating local regulatory frameworks
Spain offers many of the same benefits to investors as other jurisdictions in Europe. All funds must be regulated, they’re subject to EU legislation, and maintain the same levels of security as the rest of the economic bloc.
The Comisión Nacional del Mercado deValores (CNMV), ensures fund managers have robust procedures and processes in place to serve the interests of their investors. It requires stringent levels of transparency and control while the fund structuresare still easy to use and understand.
Keeping up with the CNMV’s evolving regulations may be a challenge to organizations without local knowledge and expertise. Transparency is a key requirement to deal with the CNMV, and engaging with a service partner who’s current with regulatory updates and changes can smooth the way for new funds.
Managing the costs of running a fund
As with any location, the cost of establishing and running a fund in Spain depends on a variety of factors, including the type of fund registration, number of investors and investments, how active the fund manager is, and how often the net asset value is calculated.
Overall, Spain is not particularly expensive, but considering start-up and registration costs, new funds must be a minimum size to be economically viable. As with navigating the local regulatory environment, fund managers benefit from partnering with a single service provider that can cover all the required elements end-to-end and offer the benefits of an international network.
Challenges of sourcing local service providers
As the Spanish market is still developing, investors may find it challenging to source service providers with the right level of experience to assist in establishing and running their fund. This growing market has much to offer, and its reputation as a top business center means the country’s investment fund offering is bound to keep growing. Careful consideration of fund service partners will help managers navigate complexity, grow, and thrive in this exciting and growing market.
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