The number of venture capital companies (SCRs) has grown exponentially in recent years to the point that they are already on the verge of overtaking that of SICAVs. The change in regulations a few years ago for the latter so that they can maintain this counterpart and benefit from the taxation enjoyed by collective investment funds, caused a wave of closures of SICAVs, particularly those of family origin and which had what we called mariachis to complete the minimum of one hundred shareholders required who have contributed the minimum capital to the company.
Many family groups then took the opportunity to transform them into venture capital companies, which led to an increase in their registrations, with double-digit annual growth over the last five years. According to the latest data from the regulator, their number now stands at 494 companies, at the limit of 495 in which the number of SICAVs has been reduced compared to the more than 3,000 that there were, according to data from Inverco.
Guillermo Santos, partner of the independent consultancy iCapital, comments that, despite maintaining tax advantages, the SCR imposes conditions regarding investment, because “there is no room for financial assets since they would be taxed at the standard corporate tax rate. The increase in the volume of the venture capital sector in Spain is due to this phenomenon“, he emphasizes.
This trend towards the launch of family SCRs comes at a time when Alternative management is gaining weight in investors’ portfolios as a way of decorrelating traditional assets, under the promise of obtaining greater profitability in exchange for the illiquidity that this type of vehicle requires and the assumption of greater risk as well. The cost of this type of company, and of alternative funds in general, encourages companies to promote their formation, even if the wealthy clients behind SCRs generally focus above all on the tax advantage.
Santos adds that in recent years many family groups have invested or are considering investing in these types of entities, with the taxation associated with these investments being an aspect to consider. “Especially, The possibility of benefiting from the advantages of the family business regime through indirect ownership of these investments is particularly interesting.. But the SCR should not be considered as a heritage entity because in this case it will not benefit from tax advantages,” he specifies.
Tax benefits
Cristina Mayo Rodríguez, financial tax associate at finReg360, explains that the doctrine of the General Directorate of Taxes recognizes that SCRs are investment companies adapted to apply family business incentiveswhich means that these are assets which could benefit from the family business exemption provided for by the Wealth Tax and the Temporary Solidarity Tax on Large Fortunes, as well as a reduction of 95% of Inheritance and Donation Rights, from the portfolio. it affects, provided that a series of conditions are met.
Concretely, more than 60% of assets, what we technically call mandatory investment coefficient. “These advantages would be directly applied and, for the remaining 40%, the rule requires that the SCR take positions representing at least 5% of the voting rights and that material and human resources are available to guide and manage participation “, explains the expert. , which recalls that “there are certain controversial aspects regarding the application of family business incentives for SCRs, such as who is responsible for the effective management of the company, whether it is necessary to respect the additional requirements for 40% of assets, if all investments are invested in accordance with the investment coefficient rules or what happens during the first years, where the regulations give you time to build the investment portfolio and comply with the rules of the aforementioned coefficient.
That is to say many questions which have led certain companies like Creand WM to alert of the need to receive specialized advice before embarking on the formation of a venture capital company, since any aspect that could be considered by the regulator to be technically questionable could result in you not being able to benefit from tax advantages during a possible examination by the regulator.
Jorge Ferrer, co-founder and partner of finReg360, underlines that SCRs must be professionally managed by management companies approved by the CNMV or be constituted as self-managed companies.which “must meet requirements similar to those of managers in terms of human and technical resources for investment management,” he explains.
“What is essential when channeling the investments of a family group through an SCR is to guarantee compliance with these principles, by ensuring active and professional management of the portfolio and by not distorting this figure,” Ferrer concludes.
Santander, leader in SICAVs
Despite the reduction in the number of SICAVs in recent years to less than 500 companies, of the more than 3,000 there are still entities which hold a significant share in the management of investment companies with variable capital.
This is the case of Santander, which remains the leader in management companies, with 120 companies of this type under its responsibility (with 3,657 million euros in total volume of assets). It is followed by Bankinter, with 90 SICAVs (1,951 million) and Andbank, with 61 SICAVs (842 million).
