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The Private Equity Review Law Business Research Third Edition Editor Stephen L Ritchie
The Private Equity
Review
Law Business Research
Third Edition
Editor
Stephen L Ritchie
The Private Equity Review
Reproduced with permission from Law Business Research Ltd.
This article was first published in The Private Equity Review, 3rd edition(published in March 2014 – editor Stephen L Ritchie).
For further information please [email protected]
The Private Equity
Review
Third Edition
EditorStephen L Ritchie
Law Business Research Ltd
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Acknowledgements
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iii
conTEnTs
Editor’s Preface ..................................................................................................viiStephen L Ritchie
PART I FUNDRAISING ................................................................. 1–196
Chapter 1 BRAzIL.......................................................................................3Sergio Ros Brasil, Marcus Vinicius Bitencourt, Leonardo Homsy and Rodrigo Pires Mattos
Chapter 2 CANADA ..................................................................................14Jonathan McCullough, James Beeby and Isaac Filaté
Chapter 3 CAYMAN ISLANDS ................................................................24Nicholas Butcher and Iain McMurdo
Chapter 4 CHINA .....................................................................................35James Yong Wang
Chapter 5 GERMANY ...............................................................................46Felix von der Planitz, Christoph Keil and Sandra Horst
Chapter 6 INDIA .......................................................................................60Siddharth Shah and Bijal Ajinkya
Chapter 7 JAPAN .......................................................................................73Kei Ito, Taku Ishizu and Akihiro Shimoda
Chapter 8 KOREA .....................................................................................84Young Jay Ro, Young Man Huh, Yong Seung Sun, Joon Ho Lee and Kyle Park
iv
Contents
Chapter 9 LUXEMBOURG ......................................................................92Marc Meyers
Chapter 10 NORWAY ...............................................................................104Klaus Henrik Wiese-Hansen and Stig Nordal
Chapter 11 PORTUGAL ...........................................................................115André Luiz Gomes and Catarina Correia da Silva
Chapter 12 SINGAPORE ..........................................................................125Low Kah Keong and Felicia Marie Ng
Chapter 13 SOUTH AFRICA ...................................................................135Johan Loubser, Jan Viviers and Andrea Minnaar
Chapter 14 TURKEY .................................................................................149Ümit Hergüner, Mert Oğuzülgen and Zeynep Tor
Chapter 15 UNITED KINGDOM ...........................................................161Mark Mifsud
Chapter 16 UNITED STATES ..................................................................174Joseph A Smith and Conrad Axelrod
PART II INVESTING ....................................................................197–519
Chapter 1 AUSTRALIA ...........................................................................199Philip Kapp and James Delesclefs
Chapter 2 BELGIUM ..............................................................................211Stefaan Deckmyn and Wim Vande Velde
Chapter 3 BRAzIL...................................................................................225Sergio Ros Brasil, Marcus Vinicius Bitencourt and Camila Caetano Cardoso
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Contents
Chapter 4 CANADA ................................................................................235Brian M Pukier and Sean Vanderpol
Chapter 5 CHILE ....................................................................................246Andrés C Mena, Salvador Valdés and Francisco Guzmán
Chapter 6 CHINA ...................................................................................257David Patrick Eich, Pierre-Luc Arsenault, Stephanie Tang and Jesse Sheley
Chapter 7 FINLAND...............................................................................275Mika Ståhlberg, Marcus Möller and Leif Laitinen
Chapter 8 FRANCE .................................................................................285Maud Manon, Xavier Norlain, Jeremy Scemama and Guillaume Valois
Chapter 9 GERMANY .............................................................................298Hans-Jörg Ziegenhain and Alexander G Rang
Chapter 10 GREECE .................................................................................310Christos Gramatidis
Chapter 11 INDIA .....................................................................................318Vijay Sambamurthi
Chapter 12 IRELAND ...............................................................................330David Widger
Chapter 13 ITALY ......................................................................................344Fabio Labruna
Chapter 14 JAPAN .....................................................................................353Kei Ito, Taku Ishizu and Tomokazu Hayashi
Contents
vi
Chapter 15 KOREA ...................................................................................363Young Jay Ro, Jong Koo Park, Yun Goo Kwon, Sung Uk Park and Yun Bak Chung
Chapter 16 MEXICO ................................................................................373Carlos del Rio, Eduardo González and Jorge Montaño
Chapter 17 NIGERIA ................................................................................388Folasade Olusanya, Adekunle Soyibo and Oluwaseye Ayinla
Chapter 18 NORWAY ...............................................................................396Peter Hammerich and Markus Heistad
Chapter 19 PORTUGAL ...........................................................................406Tomás Pessanha and Manuel Liberal Jerónimo
Chapter 20 SINGAPORE ..........................................................................420Andrew Ang, Christy Lim and Dawn Law
Chapter 21 SPAIN .....................................................................................432Christian Hoedl and Diana Linage
Chapter 22 SWITzERLAND ....................................................................444David Ledermann, Olivier Stahler and Nicolas Béguin
Chapter 23 TURKEY .................................................................................457Ümit Hergüner, Mert Oğuzülgen and Zeynep Tor
Chapter 24 UNITED KINGDOM ...........................................................470Stephen Drewitt
Chapter 25 UNITED STATES ..................................................................487Norbert B Knapke II
Appendix 1 ABOUT THE AUTHORS .................................................... 503
Appendix 2 CONTRIBUTING LAW FIRMS’ CONTACT DETAILS .. 531
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Editor’s PrEfacE
This third edition of The Private Equity Review comes on the heels of a very good 2013 for private equity. Large, global private equity houses are now finding opportunities to deploy capital not only in North America and western Europe, where the industry was born, but also in developing and emerging markets in Asia, South America, the Middle East and Africa. At the same time, these global powerhouses face competition in local markets from home-grown private equity firms, many of whose principals learned the business working for those industry leaders.
As the industry becomes more geographically diverse, private equity professionals need guidance from local practitioners about how to raise money and close deals in multiple jurisdictions. This review has been prepared with that need in mind. It contains contributions from leading private equity practitioners in 28 different countries, with observations and advice on private equity dealmaking and fundraising in their respective jurisdictions.
As private equity has grown, it has also faced increasing regulatory scrutiny throughout the world. Adding to the complexity, regulation of private equity is not uniform from country to country. As a result, the following chapters also include a brief discussion of these various regulatory regimes.
While no one can predict exactly how private equity will fare in 2014, one can confidently say that it will continue to play an important role in the global economy. Private equity by its very nature continually seeks out new, profitable investment opportunities, so its continued expansion into growing emerging markets appears inevitable. We will see how local markets and policymakers respond.
I want to thank everyone who contributed their time and labour to making this third edition of The Private Equity Review possible. Each of them is a leader in his or her respective market, so I appreciate that they have taken their valuable and scarce time to share their expertise.
Stephen L RitchieKirkland & Ellis LLPChicago, IllinoisMarch 2014
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Chapter 11
PORTUGAL
André Luiz Gomes and Catarina Correia da Silva1
I OvervIew
In the last 10 years, there has been a perceptible upwards trend in the private equity sector.
There has been a solid concentration of investment in a reduced number of private equity companies and private equity funds. Ten private equity funds total 79.4 per cent of the total amount under management. Concerning the analysis of investments in the private equity and venture capital sectors, it jumps out that, at the end of 2012, the venture capital sector represented 12.1 per cent of the amounts invested and private equity represented 87.9 per cent.
i Trends in the fundraising market and recent fundraisings2
In 2011 and 2012, we have noticed the launch of new private equity funds in Portugal, commonly called recovery funds, which aim to invest in companies facing debt and finance restructuring. The major part of these fund models are being launched with the purpose of managing real estate assets located in Portugal, namely in the areas of construction and tourism.
This trend contributed to the raising of the amount managed under Portuguese private equity funds, which in 2012 grew by €601.1 million from the previous year (2011), representing an increase of 31.8 per cent.
1 André Luiz Gomes is a partner and Catarina Correia da Silva is a senior associate at Cuatrecasas, Gonçalves Pereira.
2 Data refers to 2012 as at the time of writing, no figures are yet available for 2013.
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The investments undertaken by turnaround private equity funds represented about 41 per cent of the total investments carried out in 2012, supplanting the expansion stage, which represented 24.9 per cent of the investments.3
Another important fact that has influenced the growth of fundraising in Portugal is the constitution of funds that are financed and promoted by government entities and through the resources of the European Union.
In Portugal, newly established ‘Revitalisation Funds’, first set up in 2013, are good examples of this trend.
These funds are regionally based and were created with the purpose of promoting the growth of small to medium-sized enterprise (SMEs). They are intended to capitalise SMEs that have sustainable business models and are pursuing growth and expansion strategies.
There are currently three funds, on a regional basis, one for the north (managed by Explorer Investments), one for the central region (managed by Oxy Capital) and the last one for the south of the country (managed by Capital Criativo).
The three funds have a total financial allocation of €220 million, assured by the National Strategic Reference Framework (QREN) and by seven Portuguese banking institutions.4
The above-mentioned Revitalisation Funds account for a total of €220 million in fundraising.
Additionally, we observed the constitution of private equity funds promoted by Portuguese banks, in the scope of capitalisation compensations, which aim to finance companies – generally small businesses – in the initial stages of their activity or in the transformation or expansion stage, supporting their development and increase, with eventual involvement in their management and assuming a direct interest in the capitalisation and the valuation of that investment.
The constitution of these funds demonstrates the strong tendency for the constitution of private equity funds in the growth capital field.
These funds prefer to invest in companies that are in the expansion and development stages and are typically characterised by their investments – normally in small proportions – in the company’s capital, establishing a partnership with the management teams and their respective stakeholders. The purpose is to reach sustainable medium-term profits with the realised investments.
As regards the time that a fundraising process could take, we do not have official data on this matter. However, in our experience it may take six months to a year.
II LeGAL FrAMewOrK FOr FUNDrAISING
Decree Law No. 375/2007 of 8 November (the Decree Law) is the primary law governing private equity activity.
3 The Annual Report of Private Equity Activity, CMVM, 2012.4 www.iapmei.pt/iapmei-mstplartigo-01.php?temaid=198&msid=18.
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There are also several regulations issued by the Portuguese Securities Market Commission (CMVM), governing private equity activity, namely: (1) Regulation No.1/2008, establishing the rules regarding the valuation of the assets and liabilities comprising the portfolio, information-disclosure duties, registration procedure, good-repute requirement for the members of the boards and holders of qualifying holdings and regarding the activity of those private equity funds that mainly invest in other private equity funds; (2) Regulation No. 12/2005 regarding accounting of private equity companies and funds; and (3) Regulation No. 13/2000, regarding the submission of documentation to CMVM.
According to the Decree Law, private equity or venture capital activity consists in the investment in target companies (either through equity or debt capitalisation instruments), for a limited period of time, with a high potential for development and growth, in order to benefit in the future from said growth and development through the future sale of those target companies.
It is important to note that there is no accurate distinction in Portugal between the concepts of private equity and venture capital, with these concepts being used interchangeably. Therefore, unless otherwise specified, the term ‘private equity’ in this chapter refers to private equity activity in a broader sense, comprising private equity activity in all its forms, including venture capital.
It should be noted that the private equity legal regime will soon be amended. This initiative is due to the need to transpose the Alternative Investment Fund Managers Directive 2011/61/EU (AIFMD) into the national law.
i Preferred jurisdictions for funds
As regards the preferred jurisdiction chosen by the investors, in our experience, the Portuguese investors tend to select Portuguese vehicles whenever the investment target is located primarily in Portugal.
We note, however, that a few ‘distressed funds’, which are essentially investing in companies related to real estate, construction and tourism in Portugal, were set up in Luxembourg.
ii Legal forms of private equity players
The Portuguese private equity law (Decree-Law No. 375/2007, of 8 November) provides for three types of vehicles through which private equity activity in Portugal can be exercised: (1) private equity companies; (2) private equity funds and (3) private equity investors.
Private equity companiesPrivate equity companies are commercial entities established according to their respective type of public company, with legal personality.
In relation to private equity companies, it is important to note that private equity companies are vehicles that: (1) can be incorporated to directly own a portfolio of investments; (2) can be incorporated with the sole purpose of managing private equity funds; or (3) can combine both activities (i.e., can directly own a portfolio of investments and manage private equity funds).
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In the situation referred to in (2), private equity companies carry out equity activity through a private equity fund (see ‘Private equity funds’, infra) and not directly.
The minimum amount of the private equity companies’ share capital is different, depending on the type of activity they carry out. Where they only carry out the activity referred in (1), their minimum share capital is €250,000. In the other instances, (2) and (3), the minimum share capital is €750,000.
Private equity fundsPrivate equity funds are an autonomous set of assets, without legal personality, but endowed with the right to sue and belonging to the holders of the respective investment units.
Each fund must be managed by a management entity, usually a private equity company. However, in accordance with the Decree Law the investment activity may be carried out by a private equity company, by regional development entities and by entities legally qualified to manage closed-end securities investment funds.
The rules foreseen in the Decree Law and in the CMVM regulations regarding private equity activity are applicable to those entities, which by virtue of specific legislation, are qualified to manage a private equity fund, unless they are governed by a similar framework.
The private equity funds are not responsible whatsoever for the debts of the investors, the entities that ensure the management, deposit and marketing, or of other private equity funds.
This legal form corresponds to the more commonly known ‘contractual funds’.
Private equity investorsPrivate equity investors are special private equity companies mandatorily incorporated as a single shareholder private limited company. Only individuals may be a sole member of the private equity investors.
Please note that the activities carried out by the above-mentioned vehicles are not considered as financial intermediation activities.
The most commonly used vehicles are private equity funds rather than private equity companies.
The registration of the private equity investors vehicle with the CMVM is not public, therefore this comparison has not included private equity investors due to the lack of available data.
The dynamic activity of private equity over the last 10 years has been mainly supported by the growth of private equity funds rather than by private equity companies. This may be noticed through the number of private equity funds – 79,5 against 34 private equity companies6 that are registered in Portugal. Moreover, the value of assets managed by private equity funds is much higher than the value of assets managed by private equity companies.
5 Information collected from the CMVM website: www.cmvm.pt/en/Pages/default.aspx.6 Information collected from the CMVM website: www.cmvm.pt/en/Pages/default.aspx
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iii Key negotiable legal terms
Each private equity fund shall have management regulations, drawn up by the respective management entity, which provides the contractual rules that govern its operations (the management regulations).
The following terms are usually addressed in the private equity fund’s management regulations:a Key-man clause – this is applicable to certain key members of the private
equity fund’s management company, who shall devote their business time to the management of the private equity fund or the private equity company at stake. Should this not be the case, several consequences may be triggered, such as the replacement of those key members or the immediate suspension of new investments, follow-on investments or divestments for which there were no binding commitments prior to the event.
b Indebtedness limits of private equity fund – according to the Decree Law the indebtedness limits shall be set forth in the fund’s management regulations. This is one important item discussed between the investors and the fund management company.
c Portfolio diversification – rules that impose investment diversification criteria more stringent than those imposed by the law.
d Removal of the fund’s management company – establishes rules regarding the removal of the fund’s management company either as a result of a cause or without cause. This is one of the negotiable legal terms that have been increasingly discussed with the funds’ investors and has given rise to more detailed provisions.
iv Key disclosure items
CMVM regulations establish some information requirements. Private equity fund management entities and private equity companies shall submit biannually to the CMVM information regarding the investment portfolios; the acquisition and disposal of assets; and the balance sheet and financial statements.
They also shall submit annually to the CMVM the following documents: annual report, balance sheet, financial statements, cash-flow statement, report issued by an auditor registered with the CMVM and other accounting documents required by law or regulation.
As regards the information to be provided to the investors, it is regulated by the fund’s management regulation and, usually, it is foreseen that the information shall be reported quarterly. These reports usually contain consolidated information on the variations in the net asset value, an overview of the key figures of each of the portfolio companies and market comparisons.
The management entities of private equity funds and private equity companies shall annually submit a statement regarding the remuneration policy of the members of the respective administrative and supervisory boards for approval by the general meeting, which shall be disclosed in their annual financial statements together with the
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information regarding the total and individual annual remuneration received by the above-mentioned directors7.
The remuneration policy statement shall include the following information: a the mechanisms that enable the directors’ interests to be in conformity with the
company’s interests;b the criteria defining the variable component of remuneration;c the existence of stock option plans or share incentive plans for directors or
supervisory boards;d the possibility of paying the variable component of the remuneration, if applicable,
wholly or partially, after the assessment of the financial statements corresponding to the entire mandate; and
e mechanisms restricting the variable remuneration, in the event of the earnings clearly showing a decline in the company’s performance during the last financial year assessed or when this is anticipated for the current financial year.
v Solicitation of investors
There are no specific rules regarding the marketing applicable to the private equity activity. However, whenever the solicitation is made by public subscriptions the general rules foreseen in the Portuguese Securities Code are applicable.
The solicitation process by private subscription includes the negotiation of the management regulations, between the investors and the management entity of the fund, whenever the vehicle is a private equity fund.
The Decree Law expressly provides that the subscription or acquisition of the private equity fund’s investment units implies being subject to the respective management regulations. So, whenever there is a subscription by one investor, he must at the same time accept and agree to be subject to the management regulations of the fund.
As referred above, if the offer for distribution of a private equity fund’s investment units is a public offer (e.g., offers of securities addressed, wholly or partially, to unidentified recipients, an offer that, wholly or partially, is preceded or accompanied by a prospecting or a solicitation for investment’s intentions from unidentified addressees or promotional material or an offer addressed to at least 150 people who are non-qualified investors resident or established in Portugal) the rules set forth in the Portuguese Securities Code and the respective regulation are applicable.
In this case the solicitation process is subject to the supervision of the CMVM, and must follow the rules set forth in the Portuguese Securities Code, namely regarding the approval of a prospectus by the CMVM and the fact that it may only take place through the intervention of a financial intermediary.
Private equity funds have a minimum subscribed capital of €1 million.As regards the minimum subscription amount required per investor, the minimum
amount is €50,000, except for the directors of the management entity, who are not subject to this minimum threshold.
7 Law No. 28/2009, of 19 June.
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The minimum subscription amount per investor is not applicable to the market trading of the investment units of private equity funds.
With regards to the other private equity vehicles, namely, private equity companies and private equity investors, the contractual rules will be provided in their constitutive statutes.
The minimum share capital of a private equity company is €250,000 or €750,000, depending on the type of activities they carry out (see subsection ii, supra).
Private equity investors must have a minimum share capital of €100.
vi Fiduciary duties of the management entities
Pursuant to the Portuguese Companies Law, the entities that perform management activities are subject to fiduciary duties.
These duties include the duty of care and to the duty of loyalty. The Portuguese law defines the standards of duty of care to be observed by directors as that of a wise and orderly manager, and an understanding of the company’s business appropriate to their role. According to the duty of care directors must have the availability, and the proper technical capacity and skills for the performance of their relevant functions.
The Law provides that duty of loyalty includes the obligation to act in the best interest of the company, considering the long-term interests of the shareholders and the best interests of its stakeholders (employees, creditors and customers) which are relevant for the company’s sustainability.
Additionally, in accordance with best practice, such duty entails a non-competition obligation towards the company. This duty requires directors to place the interest of the company and its shareholders ahead of their personal interests.
Although there are no specific rules foreseen in the Decree Law, it should be noted that these are general rules that should also be applicable to the private equity players that manage private equity funds or private equity companies.
As noted above, private equity activity in Portugal is essentially exercised through one of two forms: private equity funds and private equity companies.
Thus, when a private equity activity is exercised by a private equity company, the fiduciary duties laid down in the Portuguese Companies Code are directly applicable, as a private equity company is one of the many types of commercial entities included in the genre of limited liability companies.
It could be argued that the fiduciary obligations by the managing entity towards the fund’s investors should be extended to the private equity funds, given that these cannot be classified as commercial companies because they incorporate autonomous assets without legal personality, managed by an external entity (typically a private equity company).
An answer to this question implies an analysis of the relationships established between the various ‘players’ in the private equity structure when the activity is exercised by the fund.
There is a management relationship between a managing entity and the fund investors, since the latter provide a mandate to the managing entity with the purpose of managing the fund assets, according to the investors’ exclusive interests and independently. This obligation is expressly established in the Decree Law, which means that although the
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legislation does not specifically mention the managing entity’s fiduciary duties, there is an obvious establishment of such duty.
Another allusion to the existence of a fiduciary duty can be found in the Decree Law in its stipulation that the members of the board and the qualifying holders of private equity companies be of good repute and that they should fulfill the conditions that ensure sound and prudent management.
The Decree Law also provides that the assessment of ‘good repute’ has to consider the manner in which the person normally manages his business or practises the profession, particularly in the aspects that reveal incompetence in making a decision in a considerate and discerning manner, or tendency to not promptly comply with its obligations or demonstrating behaviour that is incompatible with preserving the market confidence.
On the other hand, we emphasise that the companies in which the fund has its own share are normally managed by members nominated by the managing entity with specific duties in these companies, held by the fund, in which the investors make their investments.
As a result of these relationships, the private equity management company owes fiduciary duties to the private equity’s investors.
Moreover, in many cases fiduciary duties are expressly foreseen in the fund’s management regulations.
III reGULATOrY DeveLOPMeNTS
i Regulatory oversight by the national authorities
The private equity vehicles referred to above (those that are authorised to exercise private equity activity in Portugal) are subject to prudential and market conduct supervision carried out by the CMVM.
The CMVM is an independent public institution, with administrative and financial autonomy. The CMVM derives its income from supervision fees charged for services and not from the general state budget.
However, this does not mean that private equity activity must be carried out by one of those vehicles. There are other market players that do not carry out private equity activity through one of those vehicles and therefore are not subject to the supervision of or registration with the CMVM. These entities are commonly known as business angels.
As regards investors in private equity activity, it is important to note that they are not necessarily subject to CMVM supervision simply because they are investors. In fact, an investor may be subject to supervision by any national authority as a result of its functions but not, in itself, as a result of being a private equity investor (e.g., if the investor is a bank or any other credit institution, it must be subject to the supervision of the Bank of Portugal).
However, the Decree Law does contain one provision stating that the holders of qualifying holdings of the private equity companies should fulfil the conditions that ensure the sound and prudent management thereof (see Section II.vi, supra).
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ii Registration requirements
The following investment vehicles must be registered with the CMVM:a private equity funds;b private equity companies (regardless of whether they directly own a portfolio
of investments, have the sole purpose of managing private equity funds, or a combination of both activities); and
c private equity investors.
As mentioned above, however, private equity activity may be carried out by entities that are not registered with the CMVM, such as business angels.
The Decree Law introduced measures of simplification and rationalisation of subjects related to other private equity investment vehicles in comparison with the previous regulation, both in the stage of the constitution of private equity funds and the initial activities of private equity investors and private equity companies, depending on a single public act of simplified previous registration with the CMVM.
The establishment of a private equity fund and the commencement of activity of private equity companies and private equity investors is only subject to prior communication to the CMVM whenever the capital is not offered to the public and the investors are qualified investors or, regardless of the type, when the minimum capital subscribed by these is equal to or greater than €500,000 for each investor.
iii Tax regime
Private equity funds are exempt from Portuguese Corporate Income Tax (CIT) on the capital gains, dividends, interest and any other sort of income received, either from Portuguese or foreign sources. Due to this CIT exemption, private equity funds will not be able to recover any potential foreign tax that might be levied on investments made abroad.
The reimbursement of the capital invested by the holders of the investment units is not taxed.
Income distributed by private equity funds (by means of periodical distributions, on the redemption of its units, or by virtue of the liquidation of private equity funds) to Portuguese-resident holders of the investment units or to non-resident holders of the investment units acting through a permanent establishment located in Portugal to which the units are allocated is subject to a 10 per cent withholding tax. This withholding tax is the final taxation where the holders of the investment units are individuals (acting outside the scope of a commercial, industrial or agricultural activity). Where the holders of the investment units are corporate entities (or Portuguese permanent establishments of non-resident entities to which the units are allocated), the 10 per cent withholding tax is simply a payment on account of the final tax liability.
The income of a single person concerning private equity fund units, whenever comprising the income distributed to them, may be deducted in 50 per cent of the income obtained from dividends, in accordance with the provisions set forth in the Portuguese Singular Income Tax Code.
Capital gains obtained by Portuguese-resident holders of the investment units on the sale of the units are subject to Portuguese income tax, at the general CIT rate, in case
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of corporate entities, or autonomously and at a special 10 per cent individual income tax rate, in case of individuals acting outside the scope of a commercial, industrial or agricultural activity.
Income distributed by private equity funds (by means of periodical distributions, on the redemption of its units, or by virtue of the liquidation of the fund) to non-resident holders of the investment units (not acting through a permanent establishment located in Portugal), likewise capital gains obtained by the same from the sale of their units, are exempt from Portuguese taxation, to the extent that such holders of the investment units are not resident in clearly more favourable tax jurisdictions and, in case of being corporate entities, which share capital is not, directly or indirectly, held in more than 25 per cent by Portuguese residents.
When these conditions are not met, a 10 per cent tax is levied both on the income distributed by private equity funds and on the capital gains derived from the sale of the corresponding units, except where a double taxation treaty is entered into between Portugal and the state of residence of the holders of the investment units, whereunder the exclusive right to tax this type of income and gains is granted to the state of residence of their beneficiaries, in which case no Portuguese taxation is due.
The establishment of the fund and its subsequent capital increases do not trigger stamp tax or any other sort of taxation.
Commissions on the management of private equity funds are exempt from value added tax.
The holders of the investment units will not be considered to have a permanent establishment in Portugal by virtue of having invested in the fund.
Iv OUTLOOK
Despite the effects of the financial and economic crisis in Portugal, private equity activity has gained importance in the Portuguese market, having registered a considerable growth.
It should be noted that the private equity activity in 2012 represented 1.89 per cent of the Portuguese gross domestic product (about seven times more than in 2003).8
The legal regime governing private equity will be amended in the near future, due to the transposition into national law of the AIFMD. As the Decree Law has not been amended since 2007, it may be expected that the changes to this legislation will go beyond those that would arise solely from the implementation of the AIFMD.
8 The Annual Report of Private Equity Activity, CMVM, 2012.
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Appendix 1
about the authors
André Luiz GomesCuatrecasas, Gonçalves Pereira, RLMr André Luiz Gomes has extensive experience in finance, capital markets and M&A.
In recent years, he has been advising public and private institutions on the acquisition of companies, capital markets (public offerings and takeovers), and the structuring of private equity transactions. He has advised clients in different sectors (particularly banking and financial intermediation services), as well as private equity, media and telecommunications, automobile, food and beverage sectors.
Recently he has been deeply involved in bank recapitalisation transactions (in the context of the recapitalisation of the Portuguese banking system) as well.
CAtArinA CorreiA dA siLvACuatrecasas, Gonçalves Pereira, RLMrs Catarina Correia da Silva has extensive experience in M&A and private equity transactions. Recently, the main projects on which she has been advising include the structure and negotiation of sale and purchase agreements, coordination of due diligence procedures, negotiation of finance agreements, commercial contracts and partnerships in a wide variety of sectors as well as the structuring of private equity transactions. She also provides legal assistance on asset management and real estate funds, including its incorporation.
Mrs Correia da Silva provides legal advice on setting up private equity funds and distressed debt funds and day-to-day assistance regarding the legal framework of private equity funds and of their management entities.
About the Authors
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CuAtreCAsAs, GonçALves PereirA, rLPraça Marquês de Pombal, 21250-160 LisboaTel: 00351213553800Fax: 0035121 353 23 62andre. luizgomes@ cuatrecasasgoncalvespereira.comcatarina. correiasilva@ cuatrecasasgoncalvespereira.comwww.cuatrecasas.com
