Spain offers many advantages as a fund domicile with private equity activity reaching record highs. We examine key requirements and structures to consider when setting up a fund.
Spain is growing steadily more attractive as a fund location, drawing continued interest from foreign investors, particularly those in southern Europe and South America. As with any domicile, there are both challenges and opportunities to setting up a business in Spain. The country’s tax regime is favorable for investors, and particularly attractive to South American countries with which it has more double taxation treaties than any other European country.
Spain’s active interest in foreign investment combined with solid infrastructure, a large domestic market, access to the European Common Market, and leadership on renewable energy make it an appealing foreign investment destination.[1] Here are three areas to think about when considering setting up a fund in Spain.
What are the legal requirements for setting up a fund in Spain?
A member state of the EU and the European Economic Community since 1986, the Spanish legislative framework incorporates EU regulations. Investors may open an Alternative Investment Fund (AIF), regulated by the Alternative Investment Fund Managers Directive, an EU initiative that aims to ensure the highest standards for investor protection.
The Spanish regulator, the Comisión Nacional del Mercado de Valores (CNMV), ensures all financial players 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 structures are still easy to use and understand, an important assurance for limited partners.
Choose the right fund structure for your investment goals
With an average private investment of approximately €1 million, Spain’s fund structures are easier to understand and more straightforward than some in other countries. The most common private capital fund structures in Spain must be managed by a type of company known as Sociedades Gestoras de Entidades de Inversión Colectiva de Tipo Cerrado (SGEIC).
There are other possible vehicles that can be set up in Spain, but there are two main fund structures managed by SGEICs. The Fondo de Capital Riesgo (FCR), a venture capital fund, is primarily used to invest in unlisted companies. The Sociedad de Capital Riesgo (SCR) has the same investment objectives as an FCR but is structured as a company with a legal personality. One SGEIC can manage several SCRs or FCRs.
Consider fund registration and authorization requirements
Unlike some other EU jurisdictions, Spain will allow foreign investors holding an approved AIFM in another EU country to service the fund in Spain without requiring an additional layer of approval. This flexibility is particularly helpful for groups of investors operating across several jurisdictions. Investment funds in Spain also benefit from favorable tax rates and exemptions, which vary depending on the fund type.
Specific requirements around marketing funds and the fund registration process depend somewhat on the type and nationality of the fund and intended investors. Likewise, the cost of establishing and running a fund in Spain depends on the number of investors and investments, how active the fund manager is, and how often the NAV is calculated.
Spain’s robust economy and reputation as one of Europe’s top business centers means the country’s investment fund offering has potential for growth. Concurrently, Spain’s regulatory framework is evolving as well. Transparency is key when dealing with the CNMV, and understanding the process and local legal system will lead to success in this flourishing market.
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