INVESTMENT VEHICLES
Venture Capital Funds, Real Estate Investment Funds & SICAFI`s
RSA - RAPOSO SUBTIL E ASSOCIADOS - SOCIEDADE DE ADVOGADOS,SP, RL
Venture Capital Funds
RSA - RAPOSO SUBTIL E ASSOCIADOS - SOCIEDADE DE ADVOGADOS,SP, RL
Venture Capital FundsMain Characteristics
Legal Nature
• VCF´s are autonomous pools of assets
• No legal personality
• Capacity to institute legal proceedings
• Belong to the Participation Unit Holders (UP* owners)
Tipology of investments
• Equity (shares, preferred shares and other securities)
• Bonds and Loans
Tax Regime
• Exemption of corporate tax (IRC)
• Exit Tax
• Income subject to 10% withholding tax for fiscal residents and 0% for non residents in Portugal, subject to the Residency Tax applicable
Responsabilities
• VCF´s are not liable for any debt or lien from Unit holders, the management company, depositary bank, other entities involved in the sale of UP’s or other VCF´s.
Assets
• VCF’s are close end funds
• Minimum capital: €1.000.000.00
• Capital raise supported by new entries of cash or in kind
• Minimum subscription of €50.000,00 per investor
* Participation units, also designated as investment units, are securities without a nominal value which provide owners (unit-holders) with the right to an ideal share of the fund’s assets
RSA - RAPOSO SUBTIL E ASSOCIADOS - SOCIEDADE DE ADVOGADOS,SP, RL
Venture Capital FundsRegulatory Entities
VCF
CMVM
Supervises Law and Rules applications
Verifies the Management Regulation of Funds
Sanctioning body
Bank of Portugal
Supervisory role over the financial
entities
Auditors
Statutory accounts audit
Venture Capital FundsAutonomous Compartments
• Each compartment is represented by one or moreUP’s categories;
• The UP’s value is determined by the division of thenet asset value by the number of UP’s of eachcompartment;
• A VCF with several compartments has just one FundManagement Regulation;
• The same legal regime is applied to eachautonomous compartment , namely regarding theUP’s and the capital pre – requisites;
• The Funds Management Regulation defines theterms and conditions for UP’s transfers amongautonomous compartments.
• Each autonomous compartments has it´s own setof independent accounts
The Funds Management Rules & Regulations can accommodate several
autonomous compartments, where:
Venture Capital FundsCapital Subscription and Payment
Each UP Holder underwrites the VCF UP’s in cash or in kind (the later
is subject to an independent auditors report)
The subscription of the UP’s can be postponed as defined on the Fund
Management Regulations.
All obligations connected with the UP´s, namely VCF’s capital
subscriptions, are transmitted, in case of acquisition of the UP’s by a
third party.
DELAY:
The VCF unit holders will be considered in delay (mora) after being notified by the fund management company.
In case the UP’s are not subscribed and paid in 90 days after the notification of delay, the UP’s are lost on behalf of the VCF
Venture Capital FundsEntities Involved
VCF’s
Buy and Sell the assets on behalf of the Fund
Manages, sell and create liens on the
Funds Assets
Issues and reimburses the UP’s
Validates UP Value taking in
consideration fund assets and liabilities
Responsible for the operational management of
the Fund
Manages the relation with the Supervisors and
Tas Authorities
Responsible for the custodian of the VCF
UP’s and the securities owned by the Fund
Pays the income generated by the Fund and calculates the UP
Value
Due Dilligence
Asset Valuation
Management Company
Outsource
Providers
Make sure that the investment policy is
enforced
Unit Holders
Owner of the VCF through the ownership of the UP’s
Depositary Bank/Custodi
an Bank
Venture Capital FundsOperational Considerations
Venture Capital Fund
Unit Holder (UH)
Unit Holder (UH)
Company 1
...
Company 2Located in
any geography
Subscription and Payment of the Funds Unit
(may not be simultaneous)
Acquisition of equity stakes
Incorporation of start-ups
Finance the subsidiaries
The Fund can be owned just by one investor that can sell part or allof the units at a later stage.
The investors subscribe the VCF´s Units and inject cash in theFund.
The VCF´s receive dividends from its equity stakes and interestfrom loans granted to the subsidiary companies owned by theFund
VCF´s can invest on equity of the subsidiaries in any percentageand also on debt issued by them. It can invest also on listedsecurities up to the amount equal to 50% of the Fund’s value.
There is no restrictions on the sector or industries where thesubsidiaries are or will be operating and they can be located on anygeography.
Venture Capital FundsOperational Considerations
VCF
Unit Holders
Subsidiaries
Capital subscription and payment
Acquisition
Start - up
Finance subs
Distribution of income
On the income generated by by the Fund
On income Distribution from subsidiaries
At subsidiary level
Fiscal Residents 10%
No Fiscal Residents 0%
Withholding tax
On capital gains and other income generated by the Fund
0%
Local tax rules and rate 21% PT
Dividends received
Repayment of loans to subs
Interest from loans to subs 0%
Depends on geography
Income tax | Corporate tax
Venture Capital FundsFund`s Unit Holders Tax Regime
VCF Income DistributedRedemption of UP’s
(Capital Gains)Capital Gains from
onerous transfer of UP´s
Residents
Natural persons1
10% withholding tax rate, definitively taxed at source, with the option to aggregate the income in the income subject to the general tax rates. In the later case the withheld tax as the nature of payment on account
for the final tax due.
10% on the net income, with the option to
aggregate.
Collective persons
10% withholding tax on account for the final tax due.The income is included in the computation of the earnings before taxes.
Exception: in case there is an exemption on capital gains
Non residents, without permanent
establishmentl2
Natural persons and Collective
personsExemption of withholding tax
10% on the net income, except if included in the artº 27 of the EBF (tax
benefits statute) 2,3
1That obtain the income outside a commercial, industrial or agricultural activity
2It´s applicable the investors resident tax regime when the investors are:
• Residents in a country, territory or region with a clearly more favourable tax regime (Port. 292/2011);
• Collective persons owned in more then 25% by residents in the national territory..3
Except when the capital gains from onerous transfers of shares of companies resident in the portuguese territory and their asset base includes more than 50% ofreal estate assets based in the portuguese territory or, being management companies (SGPS) or companies that the sole purpose is to own equity stakes in othercompanies based in portuguese territory, they are in a dominant group relation, as dominant societies, with dominated portuguese resident companies with realestates assets of at least 50% of total assets located in the portuguese territory.
Venture Capital FundsBenefits
❑ Quick Licensing and beginning of operation
The registry at CMVM only implies a previous communication, so no special and express permission are required, as long as thesubscribers of the Fund are qualified investors or invest a minimum of 500.000€ per investor.
❑ Large Operational Flexibility
▪ VCF´s can invest on equity and bonds issued by it´s own companies and in any other type of securities.
▪ VCF´s can provide warranties in benefit of the it´s subsidiaries.
▪ Subscription period adjusted as defined in the investment plan (máx. of 25% of the funds term).
▪ Payment in kind or cash can be postponed over a period of time defined in the funds management rules.
▪ Possibility of issuing different types of UP´s that provide different legal and economic benefits.
▪ Possibility of having different autonomous compartments within the fund, each with it´s own UP´s.
❑ The relevance of the Funds Management Rules
▪ Define the Investment Policy and income Distribution Policy
▪ Regulates the Unit Holders Assembly and the Investment Committee.
▪ Defines the rules regarding capital increase and reductions.
▪ Defines VCF´s cost structure and values.
▪ Defines the capital subscription, realization and the regime applied in case there´s an incomplete subscription.
▪ Defines unwind/liquidation terms and conditions.
RSA - RAPOSO SUBTIL E ASSOCIADOS - SOCIEDADE DE ADVOGADOS,SP, RL
Real Estate Investment Fund
Real Estate Investment FundsIntroduction
❑ Basic definition
Real Estate Investment Funds (“REIF” or “FII” – portuguese acronym) are a common property investmentvehicle, considered as a saving instrument set under contractual form (they are not corporate entities), wherebyseveral investors invest in participation units (UP’s). This investments constitute an autonomous pool of assetthat belong to a plurality of natural and collective persons referred to as the “unit holders” or “participants”.
❑ Autonomous pool of assets
The REIF’s are autonomous undivided aggregations of assets under the joint ownership of natural, collective orinstitutional persons, and regulated by law. Participation Units or Investment Units are securities without anominal value which provide owners: unit-holders, with the right to an ideal share of the fund’s assets.
❑ Legal Personality
REIF’s have no legal personality and are represented by property or security investment fund managementcompany that act under the rules of the Civil Code. The Management Company must act in the best interest ofthe unit holders and exercise the rights and fulfill the responsibilities, on behalf of the fund.
❑ Closed End Funds Privately Subscribed
A Closed End Fund is owned exclusively by the initial unit holders. The entry of additional unit holders inpossible by the acquisition of UP´s in the secondary market or by the subscription of new UP´s under a fundcapital raise dully authorized by initial unit holders.
Real Estate Investment FundsIntervenients and Control Mechanisms
REIF
Outsourced entities
Specialized advise on:
• Asset selection taking in consideration the funds investment policy;
• Execution of Transactions.
Participant/Unit HolderOwner of the Funds Capital trough the UP´s ownership.
Fund Management Company
•Selection of real estate assets;
•Contracts closing and signing;
•Executes the distribution of income;
•Fulfilment of the information obligations;
•Controls and supervises the real estate development;
•Responsible for the Fund operational and administrative management;▪Sole responsible for the
relation with the supervisory authorities;▪Validates the UP´s Value;▪Responsible for the
relation with the Tax Authorities.
Depositary Bank•Oversight the fulfilment of
the investment policy and calculates UP’s value.
•Payment of funds income and windup proceeds;
•Custody of the securities owned by the fund
CMVM (market regulator)
- Monitors the compliance with the Law.- Monitors the preparation of the fund Management regulation;- Sanctioning Power (administrative penalties).
Bank of Portugal
- Supervises all credit institutions and financial entities like Fund Management companies.
Auditors
- Certified Audit accounts
Certified independent
appraisers registered at
CMVM:
•Obtain rigorous information
on RE assets;
-Valuations reports.
Real Estate Investment FundsMain Rules
❑ Initial Capital
▪ Not applicable on the Real Estate alternative investment vehicles when privately subscribed
or owned solely by qualified investors;
❑ Assets and Composition Rules
❑ < 5 participants/unit holders, not exclusively qualified
▪ The real estate assets can not represent less than 1/3 of the Fund total assets;▪ The real estate assets must be urban buildings or autonomous fractions;▪ Equity stakes in Real Estate Companies;▪ UP in other Real Estate Funds;▪ Derivative securities;▪ Cash.
❑ Indebtedness
▪ Qualified unit holders or <5 participants: no indebtedness restrictions▪ >=5 participants: indebtedness restriction at 33% of the fund total assets
Real Estate Investment FundsAdvantages
❑ Professional management, through the powers granted to the Investment management
company;
❑ Investment risk is limited, due to the prudential legal and regulatory rules;
❑ Capacity to operate in the market with a regulated and transparent institutional vehicle,
which adds credibility to the operation;
❑ Mandatory to provide periodic information by the Fund’s Management Company and the
Depositary Bank, ensuring a high level of transparency;
❑ Favourable Tax Regime applicable to the REIF/FII and to the unit holders.
Real Estate Investment FundsServices Provided by the Fund`s Management Company
Data Base
Coordination of the portfolio valuation
Coordination all contractual processes
Coordination and management of registries process on behalf of the Fund
Inquiry on the real estate mandatory valuations
Provide adequate information for the mandatory insurance
Bookkeeping and take the accounting of the Fund
Validates the UP values
Ensure that all Funds obligations toward the market regulators are fulfilled (CMVM)
Coordinate the payment of all tax obligations toward the Tax Authorities on behalf of the Fund
Real Estate Investment FundsServices Provided by the Fund`s Management Company
Request of all tax exemptions/reduction of levies on behalf of the Fund and in accordance with EBF - Estatuto dos Benefícios Fiscais (Tax benefit statute)
Bookkeeping of all relevant documentation relative to all real estate assets
Rent Collection
Preparation of annual reports
Coordination of the annual account certification process and auditing process by certified accounts and auditors
Payment of Fund’s income to the Unit Holders/participants
Real Estate Investment FundsServices Provided by the Fund`s Management Company
Request of all tax exemptions/reduction of levies on behalf of the Fund and in accordance with EBF - Estatuto dos Benefícios Fiscais (Tax benefit statute)
Bookkeeping of all relevant documentation relative to all real estate assets
Rent Collection
Preparation of annual reports
Coordination of the annual account certification process and auditing process by certified accounts and auditors
Payment of Fund’s income to the Unit Holders/participants
Real Estate Investment FundsFund`s Unit Holders Tax Regime
REF/FII Income DistributedRedemption of UP’s
(Capital Gains)Capital Gains from
onerous transfer of UP´s
Residents
Naturalpersons
Securities and Real Estate collective
investment vehicles
28% tax rate, income definitively taxed at source, with the option to aggregate
28% with the option to aggregate
Collective persons
withholding tax on account for the final tax due at a 25% tax rate
(Exception: in case there is an exemption on
income tax that excludes capital gains. In this situation the income will be taxed definitely at
source)
Aggregation under Corporate Income Tax (IRC)
Non residents1
Naturalpersons and
Collective persons
Securities Collective Investment vehicles
Exempt of Individual Income Tax (IRS)/ Corporate Income Tax(IRC)
Exempt of Individual Income Tax (IRS)/
Corporate Income Tax(IRC)(includes liquidation of the
vehicle)
Exempt of Individual Income Tax (IRS) /
Corporate Income Tax(IRC)(Art. 27º EBF/DTA)
Real Estate Collective Investment vehicles
210% tax rate, income definitively taxed at source
Autonomous taxation at10% tax rate
1It´s applicable the investors resident tax regime when the investors are:
• Residents in a country, territory or region with a clearly more favourable tax regime (Port. 292/2011);• Collective persons owned in more then 25% by residents in the national territory.
2Income considered is income from real estate assets
Real Estate Investment FundsTaxation of REIT
• Taxation at a 21% tax rate
• No need to make a retention at source of IRC on the income obtain by the Fund
• Losses can be carry forward for 12 year maximum
• Exemption on capital gains, other capital income and income from immovable property. All remaining income is taxed at a 21% tax rate (2015)
• Restrictions of deduction up to 70% of the taxable income
• Exempt from municipal surtax
• Payed Quarterly
• Stamp tax rate of 0,0125% for REF/FII, calculated over the net asset value of the Fund
• Taxation at 0,3% to 0,45% (depending on the municipality) calculated on the property taxable value;
• Additional tax rate (AIMI) of 0,4% calculated on the sum of the taxable value of the properties owned by the Fund.
IRC (Corporate income
Tax)
Stamp Tax
MunicipalState Tax
Real Estate Investment FundsMain Advantages
Tax Regime
Safety
Management
Valuation
Higher Tax efficiency
Legal framework that provides safety to the unit holders.
Higher effectiveness and reduced costs connected with the real estate assets
management and financing.
Credibility in the valuation process of the real estate assets.
RSA - RAPOSO SUBTIL E ASSOCIADOS - SOCIEDADE DE ADVOGADOS,SP, RL
SICAFIReal Estate
Investment Company
SICAFI – Real Estate Investment CompanyIntroduction
▪ SICAFI‘s are a collective investment vehicle with legal personality that take the form of a company through shares
with fixed capital and whose assets are held under a regime of ownership and managed on a fiduciary basis by
such companies, or independently by a contracted third party, in the sole interest of the shareholders.
The incorporation of a SICAFI requires the prior authorization of the CMVM.
▪ SICAFI’s can be self-managed, or managed by an appointed third party that must be a duly authorized investment
fund management company.
▪ The main difference between FIIs and SIIMOs is that the holders of the shares can also be in charge of managing
the fund, therefore investors will have greater control over the company’s management and investment decisions.
▪ FIIs are managed by separate fund management companies that must be registered with both the CMVM and the
Bank of Portugal, and must act independently and exclusively in the interest of the Unit-holders, at all times in
observance of the principle of risk sharing and according to high standards of diligence and professional
competence.
.
SICAFI – Real Estate Investment CompanyConcept
Autonomous Patrimony
▪ SICAFI’s are not, under any circumstance, answerable for debts incurred by shareholders or by entities that, under
the terms of the law are responsible for their management.
Private Subscription Closed End Funds
▪ Assets held only by the initial investors, being only possible the entrance of new investors by the sale of shares or
by carrying out a capital increase authorized by the current shareholders.
Capital
▪ The initial minimum capital to self-management SICAFI is € 300.000.00 (three hundred thousand euros).
▪ SICAFI can issue special category shares, of which the capital is exclusively affected to the exercise of its
activity.
SICAFI – Real Estate Investment CompanyConcept
Management, Supervisory And Owners Qualified Participations
▪ Self management SICAFI members of the board of directors:
-Individuals with good repute and professional qualification and experience;
-At least two members;
-A suitable minimum number of independent members
▪ The supervisory body of the self management SICAFI is composed by a majority of independent members.
▪ Holders of qualified participations of self management SICAFI must be suitable, taking into account a healthy and
prudent management, and the identity of new owners of qualified participations must be communicated to
CMVM.
Responsibility
▪ The members of the management and supervisory bodies of the SICAFI are jointly responsible before the
participants and before SICAFI, for non-compliance or defective compliance with the applicable legal and
regulatory duties and with the obligations arising from the incorporation documents.
SICAFI – Real Estate Investment CompanyIntervenients and Control Mechanisms
SUBCONTRACTED ENTITYSpecialized Counsels:▪ Investment and selections
of assets under the investment policies;
▪ Implementation of operations/ transactions.
▪ Back-office and Accountancy
❖ Subcontracting possibility to be decided by the board
INVESTORS
Holder of the SICAFI share capital
SICAFI
CUSTODIAN BANK▪ Responsible for the deposits of
the SICAFI values;▪ Paying shareholders their quota
of the results of the SICAFI;▪ Surveillance responsibility
(investment policy andcalculation of the shares value);
▪ Accepting deposits of thesecurities of the Sicafi, orregistering them.
BOARD OF DIRECTORS▪ Selection of of the securities
comprising the SICAFI;▪ Execution of any contracts
deemed necessary to theimplementation of theinvestment policy;
▪ Ensure the implementationof the policy for distributingresults;
▪ Comply with informationduties;
▪ Manages and supervises thedevelopment of real estatepromotion;
▪ Relationship with supervising authorities;
▪ Determines the equity ofthe shares
▪ issue shares in conjunctionwith the custodian
▪ Supervise activities inherentto the management of theSicafi
SICAFI – Real Estate Investment CompanyIntervenients and Control Mechanisms
CMVM
▪ Supervises the compliance of the applicable legislation;
▪ Elaboration of Regulations;
▪ Sanctioning Power (countermand character).
Banco De Portugal (Bank Of Portugal)
▪ Supervision of Credit Institutions and Financial Companies
Auditors
▪ Legal Certification of Accounts
Expert Appraisers
▪ Objective and precise information on real estate assets;
▪ Evaluation Reports;
▪ Registered at CMVM.
SICAFI – Real Estate Investment CompanyMain Rules
MAIN
RULES
Value of the initial
capital
Financing
Composition of
the assets
The SICAFI should start with minimum capital of € 300.000 €. In case of self-
management Sicafi it is mandatory to comply the equity of the management
companies.
The Fund must present the following structure of the asset: the value of real
estate and other comparable assets must not represent less than 2/3 of the
total net asset.
The Closed Fund of Particular Subscription has the following
indebtedness rules:
▪ Less than five participants, limitless;
▪ Five or more participants 33% of the Fund’s total asset.
REIF/SICAFI
BA
Compartimento I
Compartimento II
UP´S Cat. B
* Financial Investors
❑Capital-20% ❑IncomeDistribution– 20 %
A B
80%
❑Capital-80% ❑IncomeDistribution– 80 %
A BUP´S Cat. A
❑Capital- 25% ❑IncomeDistribution– 75 % ❑Capital-75%
❑IncomeDistribution-25%❑Priority in theIncomeDistribution
75% * Financial Investors
20%
25%
C
D
SICAFI – Real Estate Investment CompanyAutonomous Compartments
SICAFI – Real Estate Investment CompanyTaxation
Under the new regime, SICAFI’s will benefit from an exemption on certain qualifying income which iscurrently taxable, namely, investment income (dividends, interest, etc.), rental income and capital gains.These exemptions are not subject to any minimum participation requirements or holding period.
PROPERTY
INCOME
PROPERTY
CAPITAL GAINS
OTHER
INCOME
▪ Not subject ▪ Not subject ▪ Subject to CorporateIncome Tax (21%), being,
however, exempted fromMunicipal surtax and StateSurtax
IMT (municipal property transfer tax)
IMI (municipal property tax)
IS (stamp duty)
▪ Subject to general rule ▪ Subject to general rule ▪ 0,0125% paid quarterly
SICAFI – Real Estate Investment CompanyTaxation
SICAFI Income Distributed
Redemption ofUP’s
(Capital Gains)
Capital Gains from onerous transfer of UP´s
Residents
Natural
persons
Securities and Real Estate collective
investmentvehicles
28% tax rate, income definitively taxed at source,with the option to aggregate
28% with the optionto aggregate
Collective
persons
withholding tax on account forthe final tax due at a 25% tax
rate(Exception: in case there is an exemption on
income tax that excludes capital gains. In this situation the income will be taxed definitely
at source)
Aggregation under Corporate Income Tax(IRC)
Non resident1
Natural
persons and
Collective
persons
Securities Collective
Investmentvehicles
Exempt of Individual Income Tax (IRS)/ Corporatate Income
Tax(IRC)
Exempt of Individual
Income Tax(IRS)/ CorporataIncome
Tax(IRC)(includes liquidation of the
vehicle)
Exempt of Individual Income Tax (IRS) / Corporate Income
Tax(IRC)(Art. 27º EBF/DTA)
Real Estate Collective
Investment vehicles2
10% tax rate, income definitively taxed at sourceAutonomous taxationat
10% tax rate
1 It´s applicable the investors resident tax regime when the investors are:
• Residents in a country, territory or region with a clearly more favourable tax regime (Port. 292/2011);
• Collective persons owned in more then 25% by residents in the national territory.2 Income considered is income from real estate assets
SICAFI – Real Estate Investment CompanyAdvantages
✓ Professional management, through the representation authority given to the Managing Membership;
✓ The investment risk is limited by the existence of prudential rules imposed by legal and regulatory framework;
✓ The volume of assets under management, the bargaining power and the capacity to intervene in markets,
through an institutional vehicle that gives credibility to the occupation;
✓ The requirement to provide periodic reporting by managers, custodians, traders, ensures a high level of
transparency;
✓ More favourable tax status applicable to the Sicafi and to the Investors.
SICAFI – Real Estate Investment CompanyUse Examples
✓ Parking of estate assets that generate a certain income;
✓ Vehicles for estate promotion aiming a future assets’ alienation, taking advantage of the taxation applied on
capital gains;
✓ Privileged instrument for the whole commercialization of a particular asset (example: touristic enterprising,
shopping centres, hospitals) through the sale of all participation units instead of property direct sale, obtaining,
therefore, a tax optimization;
✓ Restructuring of enterprises (mainly assets without generating capital gains);
✓ Small groups of investors/promoters to enter into partnerships agreement
SICAFI – Real Estate Investment CompanyConversion of SPV into SICAFI
Before the ConversionLegal Framework – CSC -Código das Soc. Comerciais
AuditorsAuditors
Board
Shareholders /
Board Members
Board
Certified accountant
Next Step:• Change of the articles of incorporation.• Preparation of the SICAFI documentation:
▪ SICAFI Management Regulations;▪ Depositary Bank contract;▪ Certified Appraisal contract.
Advantages:
✓ Fiscal Regime;✓ The conversion is tax neutral because
there is no asset transaction.
* In case of heteromanagement,the company has to outsource theSII/ SICAFI management to a FundManagement Company
Shareholders/ Board members
SII/SICAFIBoard
Management Company*
Heteromanagement
CMC
Depositary Bank
Bank of Portugal
Auditors
Certified Appraisal
Portugal
Rua Bernardo Lima 3,1150-074, Lisboa - PortugalT. +351 213 566 400F. +351 213 566 488E. [email protected]
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