A Collective Investment Undertaking (CIU) is an institution whose purpose is the collective investment of capital obtained from investors, in accordance with a previously established internal investment policy.
Information and communication duties towards participants
The information duties are reiterated through communications, on a durable medium, regarding each execution or redemption, as soon as possible. Participants are likewise informed of the development and performance of the CIU.
Responsibilities and standards of conduct of the CIU’s management company
The CIU’s management company is subject to a stringent framework of fiduciary duties to act in the exclusive interest of participants, with enhanced standards of conduct, namely honesty, fairness, care, diligence and competence, and is also subject to a duty of confidentiality under banking secrecy rules. They have risk management and asset valuation functions, to comply with participant protection requirements, carrying out stress tests to assess liquidity risk.
Tax advantages of CIUs for participants
Taxation of CIUs for individuals
Shares are definitively taxed through withholding at a rate of 28%, and units of participation are taxed by withholding at source at a rate of 28%, while an alternative, risk, or credit investment undertaking has its units of participation subject to definitive personal income tax (IRS) withholding at source at 10%.
Capital gains must mandatorily be aggregated for IRS purposes if the assets were held for less than 365 days. After that period, they are partially taxed depending on the duration of their holding.
There is, for tax purposes, a partial exclusion of 10% of income when assets have been held for a period of more than 2 years and less than 5 years, of 20% when held for a period equal to or greater than 5 years and less than 8 years, and of 30% when held for 8 years or more.
Taxation of CIUs for non-resident individuals
For a non-resident individual, there is a 10% withholding in the case of alternative, risk, or credit investment undertakings, and an exemption on general CIUs and securities, provided that the non-resident does not have a permanent establishment to which the assets may be attributed, and does not reside in a tax haven.
Taxation of CIUs for legal persons
Income from dividends, capital and capital gains is withheld at source at 25%.
For a non-resident legal person, there is a corporate income tax (IRC) exemption, provided they are not held by an entity with more than 25% participation by residents, and are not resident in a territory with a more favourable tax regime.
Participation Exemption: conditions and limitations
The Participation Exemption may only be applied when the distributed profits do not already benefit from exclusion or exemption, in order to avoid double exemption.
Why invest in Collective Investment Undertakings?
Investments in a Collective Investment Undertaking facilitate the bridge established between the investor and the recipients of the investments, easing the important need for constant information and communication on the part of the investor to ensure the best use of their investments. In addition to facilitating operations, it also streamlines the process, increasing the likelihood of success, thus being an excellent option for professional and non-professional investors alike!
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The content of this information does not constitute any specific legal advice; the latter can only be given when faced with a specific case. Please contact us for any further clarification or information deemed necessary in what concerns the application of the law.