Some things you should know about Spanish SICAVs

Throughout this article, we will focus on the structure and functioning of Spanish SICAVs, which stands for Variable Capital Investment Company. 

As defined in article 9 of Law 35/2003, of November 4, on Collective Investment Institutions (hereinafter referred to as LIIC), it is a collective investment institution, that is to say, an institution under the form of a limited company whose social object is raising funds and managing and investing those funds in securities or other financial instruments, provided that the investor’s profits are based on collective results.

From a legal perspective, it is structured as a mercantile corporation and, consequently, it is incorporated before a notary and registered at the Companies’ House. In addition, it must be registered in the Registry of the Spanish Securities Market Commission (hereinafter CNMV) and accepted, if it were so decided, in the Alternative Stock Market.

According to Section four of Article 9 LIIC, an investment company must be made up of at least 100 investors or shareholders. This minimum is settled as a guarantee of the collectivity that might characterize this type of institutions.

The Spanish legislation on SICAVs allows the structuring of these institutions through compartments or sub-funds. Each one receives a specific denomination and issues its own shares. Thus, the part of the fund allocated to each sub-fund will be liable exclusively for the costs and obligations specifically attributed to that sub-fund. Nevertheless, those shares not attributed to a specific sub-fund may also be charged on a pro rata basis. The funds shall be financed by the contributions of the investors, who will be liable for any debt up to the limit of their contribution. Although the LIIC allows such structuring by compartments, it is worth mentioning that currently there are great difficulties in obtaining the approval of sub-funds by the CNMV. Consequently, in those cases, investment funds are chosen.

Regarding the initial share capital, Article 80.2 of Royal Decree 1082/2012 of 13 July, that approves the Regulation implementing Law 35/2003 of 4 November on collective investment, establishes a minimum of €2,400,000 that must be maintained as long as the SICAV remains enrolled in the registry. Likewise, it establishes a maximum statutory capital of up to ten times the initial capital. 

In case the institution has been structured into compartments, the minimum capital for each of them must be €480,000, always respecting the minimum of €2,400,000 for the total share capital. The value of the shares of the SICAV at the time of its incorporation should prevail; For that reason, it is incorporated with a minimum amount of €2,400,000 and, subsequently, a capital increase is completed. The number of shares is fixed and, in case their value as a whole is lower than the minimum fixed, a term of one year is established to return the value of the SICAV to its initial €2,400,000.

Pursuant to the provisions of Article 10.1 LIIC, the CNMV shall authorize the proposed incorporation of the companies, after the submission of the corresponding documentation to the CNMV. The request may be refused if any legal or statutory requirement is not met. 

In the case of SICAVs, the incorporation may be denied when:

(i) There is a lack of transparency in the structure of the group, 

(ii) A management entity is not designated, when maintaining close links with other entities, preventing the proper and effective exercise of supervisory functions by the CNMV, 

(iii) It is concluded that there may be serious difficulties to execute or to obtain the necessary information for the inspection 

(iv) Those supervision functions are obstructed by:

a. The laws, regulations or administrative provisions of a non-member state of the European Union that govern natural or legal persons with close links with the investment company, or 

b. The difficulties involved in the application of the aforementioned regulations.

In addition, the CNMV will record the SICAVs, classifying them as harmonized or non-harmonized type. It should be pointed out that up to 2005, the Tax Authorities were responsible for the tax control and supervision of the SICAVs. Later on, CNMV was appointed as responsible for that supervision, a nomination that disagreed Tax Inspectors assert that the current supervision is lighter. 

In practice, this change contributed to the creation of a greater number of SICAVs and provided greater legal certainty of this institution since the analysis criteria are concentrated in a single Institution, the CNMV.

Against the globalized idea that SICAVs are opaque, it can be clearly stated that in Spain these societies are characterized by their transparency. Through CNMV records, which are public, you can check who holds the positions in each of these societies and who owns significant shares, among other data. (The list of registered entities of collective investment institutions can be checked by clicking here)

SICAVs must be established through an excellent administrative and accounting organization, with managers or directors of good repute in the business or professional field, as well as a majority of directors with sufficient knowledge and experience in accordance to the complexity of these societies. The designation of a management company, other than the custodian, is optional. They perform essential tasks such as asset management, representation and administration of subscriptions and reimbursements.

Article 57 LIIC defines custodians as the entities entrusted with the deposit and custody of securities, cash and assets. Those custodians also monitor the management companies and administrators. Banks, savings banks, credit unions, companies and security agencies may be depositaries. They must have their registered office or, where appropriate, a branch in Spain (Article 58 LIIC).

In reference to taxation, the main reason for using this type of financial companies is that they are taxed in the same way as an investment fund, ie: 1% of nominal rate, as established in article 29.4 a) of Law 27/2014, of November 27, on Corporate Income Tax. Taxation is shifted to shareholders as they will be taxed at the time they sell the shares, provided that the sell price is higher than the purchase cost, just as it would be in case of selling units in investment funds.