Ireland a Natural Home For Islamic Funds


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Ireland a Natural Home For Islamic Funds

  1. 1. 36 • september 09 global outlook: country profile • september 09 • 37 Open Door By Ken Owens and Omer Khan Ireland as a Home for Islamic Funds As jurisdictions strongly compete to be the centre of choice for Islamic funds, Ireland is emerging as a jurisdiction which cannot be ignored. Ireland has much to offer as an international fund domicile. It ranks among the most flexible and advantageous in the onshore world with its highly reputable regulatory environment featuring a wide variety of investment fund vehicles available to suit individual investor needs and a favourable tax regime for funds. Islamic finance has been around for decades, but it has really come to the forefront of the global financial system in the last 10 years. This is mainly driven by the availability of wealth in the Middle East, where there is an estimated $1.5 trillion in funds avail- able. There is also a strong demand from a large number of Muslims for Shari’ah- compliant financial services and transac- tions. It is expected that within the next decade, 50% to 60% of the total savings of the world’s 1.2 billion Muslims will be in the form of Shari’ah-compliant products. According to global management con- sulting firm Oliver Wyman, Islamic finance There is now an assets are set to reach $1.6 trillion by expanding Islamic 2012, from $660 billion in assets at the end finance industry in of 2007. With this incredible growth comes Ireland which mainly much competition, with many jurisdictions focuses around the across the world creating incentives and establishment and administration of promoting their respective countries as the Islamic funds in the centre of choice for Islamic funds International Financial Ireland has already opened its door to the Services Centre fast-growing Islamic capital market. Ire- (IFSC). land’s entrance to this industry began back in 2006, with the issuance of the first Irish sukuk, which is basically the Islamic comparison to the conventional bond. This sukuk was admitted to the official list of the Irish Stock Exchange (ISE) and to trading on its regulated market. Since then, the ISE has listed a number of Shar- i’ah-compliant funds from issuers. The list- ing rules and process are streamlined to complement the applicable regulation of these funds. A key benefit of listing on the ISE is increased investor information flow; this, together with the added profile which a listing on an EU regulated market brings, makes such products attractive to Euro- pean investors.
  2. 2. 38 • september 09 global outlook: country profile • september 09 • 39 A key benefit of listing on the ISE is Why Ireland? Irish Structures for Islamic Funds Figure 1: Index Performance (DJIM World vs. Dow Jones World Index) increased investor The undertakings for collective invest- information flow; this, • Highly regarded and well-regulated ment in transferable securities (UCITS) together with the environment for investment funds. product is suited to managers who added profile which a • Largest hedge fund administration centre would like to distribute their funds to listing on an EU regulated market in the world. shareholders on a worldwide basis. It brings, makes such • Dedicated Shari’ah unit within the Irish should come as no great surprise that products attractive to Financial Regulator. the UCITS fund structure is proving to be European investors. • Leading jurisdiction for ETFs and money a popular one for the establishment of Is- market funds. lamic funds. The UCITS brand is a well- • Fastest-growing UCITS centre over the established, regulated and trusted last five years. framework. It allows fund managers to • Irish UCITS distribute to over 60 gain access to a pan-European invest- countries across Europe, the Americas, ment product with a recognised global Asia, Middle East and Africa. distribution network. • Largest number of stock exchange listed As investors move towards more regu- investment funds - Irish Stock Exchange. lated products, UCITS is a solid frame- work for many types of investment strategies, including Shari’ah-compliant Source: Dow Jones Indexes, 30 April 2009 funds. Once a UCITS fund is approved in Roseanne Kelly, Head of Investment Fund tively involved in this area and works Eastern region, the largest market being one EU country, application may be the US double taxation treaty where a The Future of Islamic Finance in Ire- Listing at ISE, said, “Islamic financial mar- closely with the Financial Regulator in as- Bahrain, according to Lipper Hindsight. made to have the fund registered for fund is demonstrated to be trading, land kets, and Shari’ah financial products in suring that Ireland is promoting itself as an Ireland is renowned globally as being one marketing to the public in any other EU which is a considerable advantage for Looking to the future, the success of Is- particular, are attracting more and more in- inviting jurisdiction for Islamic funds. of the premier locations for establishing country. This is commonly referred to as Irish-domiciled ETFs. lamic finance is set to continue. Accord- terest from international investors. The ISE and administering investment funds. Ac- a “European Passport” and is available Another popular Irish structure, the Qual- ing to a report by Lipper, Islamic has a number of Shari’ah funds listed and What Does Ireland Have to Offer Asset cording to the IFIA, there are in excess of only to funds under the UCITS regime. ifying Investor Fund (QIF), is a vehicle investment funds are outperforming their further listings are in the pipeline. We have Managers? 10,000 funds with a net asset value of over There are now approximately 30,000 which is most frequently used to struc- peers. The average return for the 109 also recently received enquiries regarding Ireland is a viable location for international $1.9 trillion serviced in Ireland as of Feb- UCITS funds in existence, with assets in ture alternative investment funds, includ- registered Shari’ah-compliant funds in the listing of innovative structures such as asset managers looking to establish funds ruary 2009. excess of €4.5 trillion as of the first quar- ing hedge funds, funds of hedge funds, the GCC was -28% last year, while con- alternative funds and ETFs which comply for sale to the Middle Eastern market and Fund promoters can rely on Ireland as a ter of 2009, according to the European venture capital/private equity and real es- ventional/non-Shari’ah funds returned - with Shari’ah principles. We believe there Middle Eastern asset managers looking to “one-stop-shop” for the establishment of Funds and Asset Management Associa- tate funds, because of its flexibility. It tar- 35% over the same period. In fact, the is a significant opportunity for Ireland to internationalise their businesses. Asset management companies, the domicilia- tion. However, the success of the UCITS gets sophisticated investors, namely Dow Jones World Islamic Index has out- tap into this fast-expanding market.” managers can use Irish-domiciled invest- tion of funds and unparalleled experience structure has extended beyond the bor- institutional and high net worth individu- performed the conventional index (the In light of the significant activity in Islamic ment funds to achieve their objectives. in servicing of all types of investment prod- ders of the EU and the UCITS brand is als. Since enhancements to the QIF Dow Jones World Index Price Return) investment funds in Ireland, the Irish Fi- More than 350 fund promoters from over ucts. All of the big players in the fund serv- now recognised globally as a well-regu- structure by the Irish Financial Regulator consistently over the last 10 years. nancial Services Regulatory Authority (Fi- 50 countries have set up Irish-domiciled icing world are situated in Ireland, with an lated investment product. UCITS funds in 2007, there are now just under 400 (Check figure 1) nancial Regulator) established a funds which are distributed to over 60 extensive range of services available, in- are distributed heavily in Asia, the Middle QIFs (1,131 including subfunds) ap- dedicated regulatory team for the authori- countries across Europe, Asia, the Ameri- cluding fund administrators, lawyers, cus- East and South America as well as in Eu- proved. The main enhancement is that a The demand for Islamic funds is set to in- sation of Islamic funds. In addition to this, cas, the Middle East and Africa. Addition- todians, etc., with an available skilled rope. QIF fund can now be authorised by the crease significantly as Islamic and non- the Financial Regulator also confirmed ally, 43% of Irish funds sell into the Middle 12,000-strong workforce. The UCITS structure is one of the com- Financial Regulator within 24 hours of Islamic investors become more aware of that it is actively engaged with its regula- monly used structures for many different the submission of relevant documenta- potential rewards from investing in such tory counterparts in the Middle East and Tax Benefits of Ireland types of Islamic funds such as retail Is- tion. As the range of assets eligible for funds. Ireland presents a compelling North Africa and other jurisdictions to lamic equity funds, Shari’ah-compliant the QIF is very flexible, it is an ideal prod- case as a location for the establishment share an understanding of the respective money market funds, Shari’ah-compliant uct for structuring funds for the Islamic and servicing of the new funds which this regulatory systems so that Ireland can exchange traded funds (ETFs), etc. market. demand will create. align its regulations and service offerings Corporate tax rate 12.5% Some of the largest global providers of to accommodate such products. (includes management companies) ETFs are expanding their range of ETFs There is now an expanding Islamic finance Tax of investment funds Exempt from tax on income and gains and actively pursuing Islamic markets industry in Ireland which mainly focuses Stamp duty None and have launched Shari’ah-compliant around the establishment and administra- VAT treatment Provision of services for managing a fund ETFs. It is hardly surprising that the de- Ken Owens is Shari’ah Funds Assurance Partner at PricewaterhouseCoopers Ireland, tion of Islamic funds in the International Fi- are exempt services. A proportion of the mand for Shari’ah-compliant ETFs has leading the Islamic Finance Practice. He specialises in assisting clients with a wide nancial Services Centre (IFSC). All of the VAT suffered by the fund may be recovered grown significantly due to the number of range of international funds administered in Dublin. Owens has been involved with the Irish Funds Industry Association for a number of years and has lectured on auditing main parties in the Irish financial services in agreement with revenue authorities. benefits these types of funds offer. ETFs and accounting issues to the industry. He is a member of the Auditing Standards industry have some involvement in this Withholding tax None (except for distributions made to Irish have high transparency, low costs, high Committee of the Institute of Chartered Accountants in Ireland. growing industry. This can be reflected in resident or ordinarily resident investors) liquidity and high risk diversification. number of service providers − account- Double Taxation Treaties In existence: 46 They are also tax efficient and require no Omer Khan is Shari’ah Funds Assurance Manager at PricewaterhouseCoopers Ireland. ancy firms, law firms, etc. − which have Pending: 19 minimum investment, other than the mar- He has significant experience working on IFRS/Irish GAAP Funds in the financial services industry. He is a manager on a number of investment funds targeted at the established dedicated teams of experts in Net asset tax None ket price of one share. Ireland is a lead- Islamic market which are currently administered out of Ireland. Khan is the author of Islamic finance. Additionally, the Irish ing cross-border jurisdiction for ETFs. several articles on Islamic finance in Irish/European publications, including Funds Industry Association (IFIA) is ac- Irish-domiciled funds also have access to Euromoney’s Islamic Finance Review 2009/2010.
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