Author: Jaroslav Mašek
Source: Mladá fronta Dnes (published also at www.idnes.cz), April 14, 2010, page 3

HEADLINE: Czech businessmen are founding increasing number of closed funds, attracted by tax savings. Metrostav will invest over a billion into a fund this year.

Prague
Co-owner of Travel Service Airlines Jiří Šimáně, chief officer of Central Group development firm Dušan Kunovský or a Czecho-slovak construction group controlling Metrostav. These are just three examples from 28 large and medium domestic firms that are discovering a new approach to achieve lower taxes and more organized management of their assets.

It’s called “closed qualified investors’ investment funds”. In spite of the crisis, 11 of them were created in just the past year. Industry insiders estimate that at least the same number will be added this year. According to the data from the Czech national bank, the funds had almost 30 billion crowns under their management, which is 30% more than at the end of 2008. “At least ten new closed investment funds will be created this year, probably more” predicts Vít Vařeka, owner of investment company Amista, which is the largest domestic non-banking administrator of these funds. It currently manages 13 of them; two others await approval from CNB.

Greater growth of these funds was made possible thanks to last year’s relaxation of terms
Fund structure of ownership is now used mainly by real estate and development firms; it is also suitable for hotel chains or as a pure investment way of asset management. The main attraction is the 5 percent profit tax, and it’s possible to implement other advantages as well. For example, if a fund of one group manages several of their own real properties, another firms from this group can rent it to each other, lower their tax base and the final profit will be taxed on the fund’s level by 5 percent.

“Firms can of course save costs also thanks to the simplified ownership structure and improved arrangement of managed property” says Vařeka from Amista. Regulated funds are, in his opinion, also suitably transparent partner for banks, which may in turn be more cooperative with financing. Most recently created closed investment fund, which was officially approved by CNB this January is Metrostav Nemovitostní.

“Expansion of Metrostav comes along with an increase in real property. For better profitability and utilization we decided to create a closed investment fund” fund’s chairman of the board Lubomír Prosek stated for MF DNES. According to him the fund has a basic capital in the amount of two million crowns so far, and this year, property of over one billion will be invested into it. “With central management we predict higher valorisation by approximately 20 percent compared to the present structure of ownership” added Prosek, stating that he doesn’t rule out the foundation of yet another fund focusing on development projects, if the Czech market in this industry recovers.

The possibility of founding closed qualified investor funds exists since 2006, when the amendment of Act on collective investment was approved. It took some time until businessmen and their lawyers became accustomed to this instrument. The growth was also supported by another amendment in the middle of last year, which simplified the process of foundation and administration of funds. For example, the condition of 10-year limited lifespan of the fund, which complicated the lives of real property administrators in cases of long-term leases, was removed. Newly introduced was the option to increase the basic capital of the fund by a non-monetary investment (usually real property). Closed investments funds are not utilized only by real estate industry firms though. For example investment company Arca Capital, behind which stands Slovak financier Pavol Krúpa among others, has its own fund. Czech Republic must implement European guidelines in two years, which will adjust the operation of funds further. However, according to the insiders, the domestic law is often more strict, therefore no major changes are expected.

Facts:
Increasing number of investment funds Year Number of funds Property

Note: Status data to the end of the given period. Managed property in billions of Czech crowns. Source: CNB

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