Opportunities and risks of FIZ operation
Among the main advantages of Closed-End Investment Funds (FIZ) is the diversification of the economic risks incurred by entrusting funds to an entity that specializes in making investments, i.e. an investment fund company. The use of a FIZ also provides the opportunity to carry out an effective succession of assets and avoid fragmentation.
In addition, an advantage is the tax exemption provided with certain exceptions for investments related to unincorporated companies for a closed-end investment fund. This is because, according to the CIT Law, income does not include the value received by the fund from payments made in cash or securities or shares in limited liability companies accepted in exchange for the allocation or disposal to fund participants of participation units or investment certificates. In practice, only distributions from the fund to participants will be taxed.
In principle, the task of FIZs should be the collective investment of money in the common interest of certificate holders. If the fund conducts a different type of activity, this may raise doubts among the tax authorities, who in turn may point to a commercial company as the correct legal form in such a situation. Thus, there is a risk that the authorities will apply the tax circumvention clause to this type of factual situation.
In addition, it should be borne in mind that certain types of FIZ income, particularly those related to income received from unincorporated companies (which are not CIT taxpayers), do not enjoy tax exemption.
