Wealthy Spaniards are racing to get their money out of a 29 billion euro ($33 billion) investment vehicle industry as the government closes a tax loophole.
Wealth managers from Banco Santander SA to UBS Group AG have been busy in recent weeks informing the Spanish market regulator of their intention to close the products, known as sicavs.
So far, more than 800 of the 2,276 registered mutual funds have announced their intention to close, according to the regulator, known as CNMV.
Spain’s parliament approved a legislative change last year that tightened tax regulations for mutual funds, a product favored by wealthy Spaniards as a cost-effective way to close their investments. Podemos, a far-left party that is Prime Minister Pedro Sanchez’s main partner in his Socialist-led coalition, had pushed for change on the grounds that vehicles allow the wealthy to pay less tax.
Until now, sicavs paid a levy of 1% on profits against 25% for corporation tax.
The vehicle structure requires that they have at least 100 investors. The bankers who organize them would usually arrange for the principal owner to hold the majority of the shares, while appointing partners to hold single shares to build up the necessary number.
According to the new rules, each participant must now have invested at least 2,500 euros in the sicav for it to continue to benefit from the reduced tax rate. If this condition is not met, the tax rate increases to 25%.
A vehicle worth 255 million euros set up for Sandra Ortega, the daughter of Inditex SA founder Amancio Ortega and the richest woman in Spain, will be closed as a sicav and the assets transferred to another type of vehicle, according to a regulatory filing Friday.
Santander announced the liquidation of sicavs worth 436 million euros, while UBS told the regulator it would close vehicles holding 332 million euros. The Spanish asset managers of Credit Suisse Group AG and BNP Paribas SA also announced that they would close mutual funds.
Sicavs now have six months to either adapt to the new regime or be liquidated. If investors choose this option, they can switch to other funds without being taxed for the transfer of their money.
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