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Irish Fund Structures For International Distribution Nov09


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Irish Fund Structures For International Distribution Nov09

  1. 1. Irish fund structures for international distribution UCITS & Qualifying Investor Funds (QIFs) First for business. First for people.
  2. 2. Contents Introduction to the Irish funds industry in Arabic 01 Introduction to the Irish funds industry 07 Establishing a fund in Ireland 13 UCITS funds 19 Distribution of Irish UCITS funds 25 Qualifying Investor Funds (QIFs) 31 Taxation of Irish funds 35 Services & contacts 37
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  4. 4. Introduction to the Irish funds industry in Arabic 1
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  9. 9. Introduction to the Irish funds industry 6
  10. 10. Overview Ireland is renowned globally as a premier location for establishing and servicing investment funds. Fund promoters can rely on Ireland as a ‘one-stop-shop’ for the domiciliation of funds and unparalleled experience in servicing all types of instruments. An abundance of the big players of the fund servicing world are situated in Ireland, with an extensive range of services available including fund administrators, lawyers, custodians etc. As a result, Ireland is the chosen location for many international fund players. Since its inception as a centre for investment funds, Ireland has positioned itself as a location for the establishment of “regulated” investment funds. As investors seek greater transparency and comfort from investment products and as greater regulatory oversight of investment funds becomes imminent, Ireland has a number of well established suitable products to fit this growing need. The two most popular regulated products in Ireland are UCITS and the Qualifying Investor Fund (QIF). 7
  11. 11. Scale of the Irish funds market Irish domiciled funds - Did you know the • In excess of 10,700 funds with a breakdown in assets between following facts net asset value of over EUR 1.3 UCITS & Non - UCITS trillion serviced in Ireland as of about the Irish funds September 2009 according to the market? Irish Fund Industry Association (IFIA). • There are over 5,000 Irish domiciled funds with assets under management of EUR 703 billion as of September 2009 according to the IFIA. Source: Central Bank of Ireland, August 2009 • Fastest growing European and UCITS fund administration centre Irish domiciled funds - over the past five years. (Irish breakdown by type domiciled net assets grew by 49% between 2004-2008; the European average for the same period was 15%, Source: Central Bank of Ireland & EFAMA) • 80% of Irish domiciled funds are UCITS with a Net Asset Value of EUR 570 billion in over 3,000 funds including subfunds as of Source: Central Bank of Ireland, June 2009 June 2009 according to the IFIA. 8
  12. 12. Product Innovation in Ireland Total assets of Irish domiciled • A leading European domicile for money market funds money market funds. • The leading European domicile for Exchange Traded Funds (ETFs). • The largest hedge fund EUR Billion administration centre in the world. • A growing market for Shariah funds. All of the main parties in the Irish financial services Source: Central Bank of Ireland industry have some involvement Ireland as a domicile for in this growing industry. This European ETFs can be reflected in number of service providers − accountancy firms, law firms, etc. − which have established dedicated teams of experts in Islamic finance. Additionally a Shariah funds specialist unit has been established in the Financial Regulator. According to data Source: Barclays Global Investors & IFIA July 2009 compiled from the Eurekahedge Islamic Funds database, 20% of Irish administered alternative the Islamic funds market outside investment funds of the Middle East is located in Ireland, as of September 2009. Source: Hedge Fund Intelligence & IFIA July 2009 9
  13. 13. Irish Regulatory Environment investors. The custodian has a of all the main markets for Irish • Constructive regulatory duty of care to the unit holders UCITS funds is shown later in environment – robust and and is liable for any failure to meet the document in the distribution efficient regulatory environment the requisite standard of care. section. with a wide variety of investment Such liability will also extend to • Equity is the leading asset fund vehicles available to suit the custodian’s appointment of class for Irish UCITS funds in individual investor needs. The any sub-custodians, which is of all the four main regions: Europe, Financial Regulator regulates on a particular importance to investors Asia, the Middle East and South ‘principles based’ approach rather where assets are likely to be held America. This is also discussed in than a rigid rules based system. in various jurisdictions outside more detail later in the document • Speed to market: 24 hour Ireland. in the distribution section. approval process available for • Irish risk management process • 358 fund promoters from over Qualifying Investor Funds (QIFs) is based on guidance notes with 50 countries have set up Irish and an average 4-6 weeks for all built-in flexibility. Risk monitoring domiciled funds. If non -Irish other fund structures. for non-sophisticated funds in domiciled funds are included, over • Fast track promoter approval – Ireland is on a daily basis. In 780 fund promoters use Ireland as within one week of application Ireland the risk management a servicing centre for investment process is not the responsibility of funds. • Promoter financial resources any designated individual. requirement: Irish promoters Promoter origin of Irish domiciled must have minimum net Distribution of Irish Funds funds - Percentage of total Irish shareholder’s funds of €635,000, • Irish domiciled funds are domiciled assets by promoter origin or equivalent in another currency. distributed in over 60 countries • Promoter liability – Irish across Europe, the Americas, Asia Promoters not legally responsible and the Pacific, the Middle East for losses of funds, as long as due and Africa. care has been provided. • The main target market for • The Irish custodian model as Irish UCITS in the EU is the UK. required by the Financial Regulator Switzerland is the main market provides significant comfort to outside of the EU. A breakdown Source: Lipper Ireland Fund Encyclopaedia, June 2009 10
  14. 14. Other Key Facts Irish stock exchange listings - • A recognised EU and OECD, open Nos. of funds and sub-funds listed and tax transparent jurisdiction with the lowest headline corporate tax rate in the OECD. • Largest number of stock exchange listed investment funds. • 12,000 skilled employees with availability of industry-wide training (over 9,500 employed directly by fund administrators Source: Irish Stock Exchange and over 2,500 employed in associated services, e.g. legal, The investment funds industry in Ireland tax, audit, listing etc.) 45 Administration Companies --------------- 19 Trustee/Custodian Banks • Ireland is a member of the EU, Euro zone, OECD and FATF and is continually ranked highly in Investment Funds international surveys of places to Lawyers carry out business. Ireland is not In excess of 10,700 funds (Incl. sub funds) 358 Fund included on any international list Promoters 570 billion in domiciled (of Irish funds) of tax havens (e.g. OECD/G20). Listing assets • Ireland is a modern, Brokers 153 billion in international, open economy non-domiciled assets where business can be conducted 1.3 trillion in assets 786 Fund with Asia in the morning, the Accountants being serviced Promoters (including non Irish funds) Americas in the afternoon and 12,000 people employed Europe throughout the day. Source: IFIA September 2009, Lipper Ireland Fund Encyclopaedia 2009 11
  15. 15. Establishing a fund in Ireland 12
  16. 16. The Irish Financial Services Regulatory Authority (the “Financial Regulator”) is the competent authority responsible for the authorisation and supervision of funds in Ireland. The Financial Regulator operates an “open door” policy with regard to fund managers and welcomes the opportunity to meet new managers to discuss potential projects. The Financial Regulator’s innovative and proactive approach to regulation, combined with its accessibility, has earned it a deserved reputation as a first-class regulatory authority. 13
  17. 17. Promoter Approval relevant experience in promoting and cross-border throughout Europe and When deciding to establish a fund managing funds, ownership details, increasingly in areas such as the in Ireland, one of the first things to latest audited accounts, confirmation Far East, the Middle East and Latin be determined is the identity of the that the promoter is regulated in its America, without the need for full promoter. The Financial Regulator home jurisdiction and confirmation authorisation in the target countries. requires that a promoter be identified that it has at least €635,000 in This makes them particularly to satisfy it that there is an entity of shareholders’ funds. suitable for managers seeking global substance backing the project. There distribution. While non-UCITS do is no legal basis for the concept of If the proposed investment manager not enjoy the same cross-border promoter and the promoter has no (being the entity with discretionary marketing benefits as UCITS, non- financial or contractual obligation to authority to manage and invest the UCITS offer greater flexibility in terms the fund. fund’s assets) is a separate entity to of investment strategy. They are the promoter, it must also submit an more suited to managers wishing to The promoter, which may be the same application for approval along the target sophisticated investors and/ entity as the investment manager, same lines. or wishing to pursue more aggressive is responsible for the application or alternative investment strategies. to the Financial Regulator for UCITS and non-UCITS Non-UCITS generally tend to be sold authorisation of the fund and it (the on a private placement basis. There are two broad categories of promoter) must be approved by the investment funds in Ireland: UCITS Financial Regulator in advance of and Non-UCITS. UCITS submission of the application for fund authorisation. UCITS operate on the basis of their The essential difference between the availability to retail investors, although two regulatory frameworks is that The approval process for the promoter many are institutional funds. Their UCITS funds are established pursuant normally takes approximately four investment and borrowing restrictions to European legislation whereas non- weeks and, once obtained, this are generally not negotiable. The UCITS are established pursuant to approval is valid for any further basic investment restriction for indigenous Irish legislation. UCITS funds established in Ireland by that UCITS is that at least 90% of net funds must invest in accordance promoter. assets must be invested in listed with the investment and borrowing or soon to be listed (max 10%) The Financial Regulator will require restrictions imposed by UCITS transferable securities or securities information to be provided, outlining legislation. UCITS can be marketed 14
  18. 18. issued by sovereign states or their Non - UCITS local authorities, with no more than Non-UCITS funds can generally be a 10% exposure to any one issuer. divided into three main categories. Borrowings are restricted to 10% These are Retail Funds, Professional of NAV and may only be made on a Investor Funds and Qualifying Investor temporary basis. Funds. Since 13 February 2002 (the Retail Funds must comply in full with implementation of amending UCITS the Non-UCITS investment restrictions Directives referred to as UCITS III), as contained in the Financial UCITS are no longer restricted to Regulator’s NU Series of Notices. investing principally in transferable securities and the main objective of a Professional Investor Funds (“PIFs”) harmonised UCITS may now consist have a minimum initial subscription of investing in other financial assets requirement per investor of €125,000 such as: or the equivalent. PIFs enjoy considerably more relaxed borrowing • money market instruments; and investment restrictions compared • units in collective investment to UCITS and retail non-UCITS schemes; funds and are therefore suitable for funds aimed at more sophisticated • deposits with credit institutions; investors. • financial derivative instruments; and Qualifying Investor Funds (“QIFs”) are designed for high net-worth • index tracker funds. individuals or institutional investors. More detail on UCITS and the No borrowing or investment flexibility of the product is provided restrictions apply. The basis for later in the document, in the UCITS QIFs is that investors in these funds funds section. have a high degree of knowledge and experience of relevant markets and a detailed understanding of the 15
  19. 19. investment risks involved. Investment and investment limited partnership. The Irish Stock Exchange in these funds are confined to Consideration should be given to Should a fund wish to list its units/ Qualifying Investors, namely:- investment strategy, target investor shares on the Irish Stock Exchange market, distribution plans and tax (“ISE”), it will need to appoint Irish • an individual who has a minimum consequences in choosing the listing agent/stockbroker. A stock net worth (excluding main optimum vehicle and structure. exchange quote on the ISE is residence and household goods) available to Irish and foreign funds. in excess of €1,250,000; Fund Authorisation Due to the close working relationship or Once the promoter and investment between the ISE and the Financial • an institution, which owns or manager have been approved, the Regulator, the ISE automatically invests on a discretionary basis at next step is obtaining approval for the accepts the suitability of the least the equivalent of €25 million fund documentation. An application investment manager and custodian or where its beneficial owners are for authorisation of an investment of funds authorised by the Financial Qualifying Investors in their own fund is made by lodging fund Regulator. right. documentation, in draft form, with the Financial Regulator. The minimum initial subscription per Taxation investor in a QIF is €250,000. The The Financial Regulator will usually Irish investment funds are exempt minimum amount of subsequent respond with its initial comments from any Irish tax on income and subscriptions is not limited. within three to four weeks of receipt gains derived from their investment of an application. Depending on its portfolios irrespective of where their More detail is provided on the QIF nature and complexity, a typical fund investors are resident. later in the document in the Qualifying should be capable of authorisation Investor Funds (QIFs) section. within a four to six week period upon As the Irish vehicle is tax neutral, submission of all documentation. generally the tax consequences for investors of acquiring, holding, Fund Vehicles The exception to this is the QIF converting, redeeming or disposing There are several legal forms through which avails of a one day fast-track of units/shares in an Irish fund will which an investment fund can authorisation procedure. depend on the relevant laws of the be established including variable jurisdiction to which the investor is capital investment company, unit subject. trust, common contractual fund 16
  20. 20. There is a detailed table on Irish tax This, effectively, means that the later in the document in the taxation fund appoints an Irish-based fund of Irish funds section. administrator. The fund is specifically required Directors to have an Irish-based custodian, All Irish domiciled investment which cannot be the same entity as companies and Irish domiciled the administrator. The fund must management companies of Irish funds also have auditors, who will also be must have at least two Irish resident Irish-based. Certain fund vehicles directors. The Financial Regulator require a management company to be must satisfy itself as to the reputation appointed. and experience of all directors by applying its Fitness and Probity test. A substantial amount of the world’s leading financial institutions operating in the fund administration industry are Service Providers based in Dublin and thus the sourcing In an Irish domiciled fund, certain of appropriate service providers for minimum activities must be carried Irish domiciled funds presents no out in Ireland, including the following:- difficulty. • safekeeping and custody function; • net asset value calculations; • fund accounting; • maintenance of members register; • preparation of financial reports; and • retention of all investor correspondence and original documentation received. 17
  21. 21. UCITS funds 18
  22. 22. What are UCITS? UCITS are Undertakings for Collective Investment in Transferable Securities. Having their origin in European legislation, UCITS benefit from an EU-wide “passport” which means that once they are authorised in one EU member state, they can be sold in any other EU member state without the need for additional authorisation. Because of the necessity to comply with a common European standard, UCITS are now regarded globally as very well regulated funds, with robust risk management procedures, a strong emphasis on investor protection and coming from a stable environment. As a result, the UCITS brand is recognised beyond the EU and UCITS products are accepted for sale in Asia, the Middle East and Latin America. 19
  23. 23. Total assets of Irish domiciled UCITS What can UCITS invest in? funds - EUR billion While UCITS funds must invest in accordance with the investment and UCITS are now borrowing restrictions imposed by distributed in over UCITS legislation, advances in the UCITS product have broadened the 140 countries, so the range of assets into which UCITS UCITS product is ideal can invest. In summary, UCITS are permitted, subject to certain criteria, for asset managers to invest in: - seeking access to • transferable securities; Source: Central Bank of Ireland multiple markets. Total number of Irish domiciled UCITS • money market instruments; The distribution of funds - Funds including sub-funds • other open ended funds; Irish UCITS funds is • closed ended funds; • cash deposits with credit discussed in detail institutions; later in the document • structured financial instruments; • financial derivative instruments; in the distribution – swaps section. – options – futures Source: Financial Regulator – forwards – OTC derivatives – CFDs – derivatives on commodities indices – derivatives on hedge fund indices – repos 20
  24. 24. What are the principal investment • a UCITS can invest up to 20 per • the Financial Regulator may restrictions? cent of its net assets in deposits authorise a UCITS to invest • a UCITS may invest no more made with the same credit up to 100% of its net assets in than 10% of its net assets in one institution. This limit is raised to different transferable securities issuer, with the aggregate of all 20% for deposits made with the and money market instruments investments in excess of 5% not fund’s custodian. issued or guaranteed by any to exceed 40% of the net assets. • the risk exposure of a UCITS to a government, local authority or The 10% limit is raised to 25% counterparty to an OTC derivative public international body subject for bonds issued by EU credit may not exceed 5% of net asset to certain conditions. institutions that are subject to value. This limit is raised to 10% laws protecting bondholders. in the case of credit institutions What strategies can be pursued? The aggregate of any such in the EEA or other specified Recent market difficulties have led investments in excess of 5% may countries. to dramatic changes in investors’ comprise up to 80% of the UCITS appetite for risk. This revision of asset net assets. • a combination of two or more of allocation strategies has resulted in the following issued by, or made an increased demand by investors for • the limit of 10 per cent above or undertaken with, the same is further raised to 35 per cent regulated products. More and more, body may not exceed 20% of the this has led hedge fund managers to if the securities or instruments net asset value of a UCITS: are issued or guaranteed by a move into the regulated fund arena, government or its local authorities – investments in transferable either as a result of their investor or by a public international body. securities or money market base wishing to move away from instruments; unregulated hedge funds or as those • a UCITS can invest up to 10% managers seek to attract new money. of its net assets in unlisted – deposits; and/or transferable securities and money – counterparty risk exposures UCITS funds, in particular, are seen market instruments. arising from OTC derivatives as the product of choice, due to their transactions. liquidity, transparency, high level of • a UCITS can invest up to 20% of its net assets in any one CIS. investor protection and distribution Investment in non-UCITS CIS may opportunities. Also, flexibility: the not, in aggregate, exceed 30% of UCITS product enables hedge fund net assets. managers to mirror many of their 21
  25. 25. hedge fund strategies through the • absolute return use of an appropriate mix of leverage, • long/short equity (e.g. 130/30) shorting and derivatives. • statistical arbitrage UCITS III significantly widened the • convertible arbitrage range of investment possibilities for UCITS funds. Of major significance • global macro is the ability of managers to use • market neutral financial derivative instruments (“FDI”) • fixed income arbitrage to access strategies which were previously the preserve of hedge • convertible bond fund managers. The opportunity • credit funds to structure alternative investment • hedge fund index funds strategies within the robust regulatory framework of a UCITS has been • commodities index funds critical to the growth of the product. • synthetic ETFs Examples of strategies that are being • fund of funds pursued by UCITS include: • enhanced fixed income • structured products • managed futures 22
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  27. 27. Distribution of Irish UCITS funds 24
  28. 28. Overview UCITS funds are the ideal vehicle for promoters who wish to distribute their funds throughout the EU without having to obtain authorisation from each Member State. Although, the success of the UCITS structure has extended beyond the borders of the EU and the UCITS brand is now recognised globally as a well regulated investment product. Distribution is paramount to the success of the UCITS product. Ireland is renowned as a centre of excellence for UCITS products. Irish UCITS funds are distributed heavily in Asia, the Middle East and South America as well as in Europe. 25
  29. 29. Many different types of strategies Breakdown of the main markets for Top markets for Irish UCITS funds and products have been set up as Irish UCITS funds EU UCITS funds. The UCITS framework Our research on the distribution of Switzerland has become increasingly diverse over Irish UCITS funds focused on fund the last few years. Most investment groups in Ireland where the number of Singapore strategies are now allowed under the countries which they distribute to is Chile UCITS regime. As we have mentioned, greater than 5. (58 fund groups match Hong Kong even alternative strategies may now this criteria). All fund groups sell to Other be achieved within the UCITS regime. one or more EU countries i.e. 100%. Channel Islands An increasing number of hedge As shown in the chart opposite, Bahrain Countries fund managers are looking to set up top markets for Irish UCITS funds Peru their funds under the UCITS regime. include countries in all main regions Additionally, many Exchange Traded including Europe, the Americas (Peru Funds and Money Market Funds in and Chile), Asia (Singapore and Hong 0 20 40 60 80 100 Ireland have been set up under the Kong) and the Middle East (Bahrain). % of fund groups UCITS regime, benefitting from the Source: Lipper Hindsight, PwC analysis, July 2009 principle of mutual recognition within Other countries includes: Australia, Bahamas, Cyprus, Gibraltar, the EU and a high level of acceptance Isle of Man, Japan, Macau, Mauritius, Mexico, Panama, South Africa & the United Arab Emirates. by regulators worldwide as well as the advantage of a global distribution network. 26
  30. 30. The chart opposite highlights the main Breakdown of leading markets for Irish markets by region. Europe is the most UCITS popular region for Irish UCITS funds 100 with the greatest number of the 58 fund groups selling Irish UCITS funds into this region as might be expected. 80 Asia is the next largest market for Irish UCITS funds, followed by South 60 America and then the Middle East. 40 % of fund groups 20 Netherlands Hong Kong Singapore Germany Sweden Bahrain Austria France Taiwan Spain Chile Peru Italy UK 0 EU Asia/ME South America Source: Lipper Hindsight, PwC analysis, July 2009 Breakdown of EU countries for Irish UCITS UK Germany France Netherlands Austria Spain Italy Sweden Luxembourg Norway Belguim Finland Countries Denmark Source: Lipper Hindsight, PwC analysis, July 2009 Note: Other EU countries that Irish UCITS distribute to include: 0 20 40 60 80 100 Czech Republic, Greece, Poland, Portugal, Slovakia & Slovenia. % of fund groups 27
  31. 31. What are the main asset classes for are bond funds. This is followed Irish UCITS per region? by 29% in South America and Our research here is focused on fund 25% for both Europe and the groups in Ireland where the number Middle East. of countries to which they distribute • The breakdown for the money is greater than 5. According to the market asset class is as follows. Lipper Hindsight database, 58 fund In both the Middle East and South groups match this criteria as of July America 19% of Irish UCITS funds 2009. The main asset classes focused sold into these regions are money on include: equity, bond, money market funds. This is followed market funds, mixed assets and other. closely by 17% in Asia and 15% • Equity is the leading asset class in Europe. for all the four main regions: • The mixed assets class Europe, Asia, the Middle East breakdown for each region is and South America. In the Middle as follows: Europe (12%) and East, 50% of Irish UCITS funds Asia (10%). This asset class only sold into this region are equities. accounts for 4% in South America The percentage breakdown for and no Irish UCITS that sell into the equity asset class in the the Middle East are classified other regions is as follows: South under the mixed assets class. America (48%), Europe (43%) and • All other asset classes fall under then Asia (37%). the other category with the • Bonds are the next most popular following breakdown: the Middle asset class in all the regions. 31% East (6%), Europe (5%), Asia (5%) of Irish UCITS funds sold into Asia and South America (0%). 28
  32. 32. Key domiciles where Irish UCITS are distributed Top 5 countries in the EU where each Irish UCITS asset class/product offering is distributed Rank Equities Bonds Money market funds Exchange traded funds 1 UK UK UK UK 2 Germany Germany Germany Germany 3 France/Netherlands France France Italy 4 Austria Austria/Spain Spain Netherlands 5 Italy Italy Austria/Italy Luxembourg Top 5 countries outside the EU where each Irish UCITS asset class/product offering is distributed Rank Equities Bonds Money market funds Exchange traded funds 1 Switzerland Switzerland Singapore Switzerland 2 Singapore Singapore Hong Kong Singapore 3 Chile Taiwan Chile Chile 4 Hong Kong Hong Kong Bahrain/Switzerland Peru 5 Taiwan Chile Macau/Taiwan N/A Source: Lipper hindsignt, PwC analysis, July 2009 29
  33. 33. Qualifying Investor Funds (QIFs) 30
  34. 34. The Qualifying Investor Fund (“QIF”), the most successful non-UCITS fund in Ireland, is the vehicle of choice for fund promoters wishing to pursue alternative strategies such as hedge funds, private equity/venture capital funds and real estate funds. The significant investment flexibility which the Irish regulatory regime offers to QIFs together with the fact that they can be authorised within 24 hours of filing documentation with the Financial Regulator, has made them one of the most successful Irish fund products . The QIF now competes in terms of flexibility and speed-to-market with products in offshore centres such as Cayman and BVI but with the added advantage of being located within a robust regulatory framework. 31
  35. 35. Total assets of Irish Qualifying Investor Flexibility Qualifying as a QIF Funds (QIFs) - Total assets (Eur billion) The general investment and borrowing In order to qualify as a QIF, the fund restrictions imposed by the Financial may only accept investors who satisfy Regulator on investment funds are certain eligibility criteria (“Qualifying automatically avoided by structuring Investors”) and who subscribe a the fund as a QIF. minimum of €250,000 into the fund. QIFs can pursue investment strategies A Qualifying Investor is, which include short selling, significant borrowings and leverage, derivatives • in the case of a natural person, and investments in other funds, an individual with a minimum net Source: Central Bank of Ireland without restriction. Similarly, the limits worth (excluding his/her main on the level of investment in any given residence and household goods) market or securities which apply to all of €1,250,000; or other types of funds in Ireland do not • in the case of an institution, apply to QIFs. Total number of Irish domiciled – one which owns or invests on Qualifying Investor Funds (QIFs) - Accordingly, QIFs are particularly a discretionary basis at least Funds including sub-funds suitable for sale to sophisticated €25,000,000 or its equivalent investors such as high net-worth in other currencies; or individuals and institutions. More – where its beneficial owners are aggressive investment strategies can Qualifying Investors in their be pursued, such as: own right. • hedge funds 24 Hour Authorisation • real estate funds QIFs are authorised to launch within one day of filing the prescribed • infrastructure funds documentation with the Financial Source: Central Bank of Ireland • private equity funds Regulator. An application for • venture capital funds authorisation as a QIF can be made where the: 32
  36. 36. • promoter; Fund Vehicles expenditure. As a tax exempt vehicle, • management company (if A QIF can be established as a variable the QIF will not suffer any Irish tax applicable); capital investment company, unit on interest income and dividends trust, common contractual fund received from the SPV. • directors in the case of an or investment limited partnership. investment company; Consideration should be given to Other Key Features of QIFs • trustee / custodian; and investment strategy, target investor • audited annual accounts must be market, distribution plans and tax • other service providers (fund sent to the Financial Regulator consequences in choosing the administrator, investment and shareholders within four optimum vehicle and structure. manager) months of the year end; have been approved/cleared by the • semi annual accounts are not Financial Regulator in advance of Use of SPVs required; the application and where the fund QIFs can invest in underlying assets through wholly owned special • any amendments to the QIF’s reflects the agreed parameters. prospectus or material contracts purpose vehicles (“SPVs”). This is The relevant application form for of particular interest, for example, need to be filed with the Financial a QIF, which must be completed for real estate funds where each Regulator one business day prior and submitted to the Financial real estate investment can be made to coming into effect; Regulator, is designed to establish through an SPV in order to ringfence • QIFs can issue a separate the parameters within which a QIF liability relating to each project. The prospectus for a share class can operate. A certification must SPV structure can also be used within a QIF or within a sub-fund accompany the application form for tax efficiency purposes, by of an umbrella QIF, provided the confirming that the application form holding underlying assets through existence of other share classes is is correct, complete and accurately an Irish SPV. Although the SPV disclosed to investors; and reflects the material documentation of will be subject to Irish corporation • a QIF may issue notes, on the QIF and that the prospectus etc. tax at a rate of 25% on its taxable a private basis, to lending complies with the relevant regulations. profits, its transactions are generally institutions to facilitate financing Once all necessary documents are structured so that the level of taxable arrangements, provided that completed and submitted to the profit is negligible or zero. This is details of the note issue is clearly Financial Regulator by 3pm, the QIF done by ensuring that the SPV’s disclosed in the prospectus. will be authorised the following day. income is matched by tax deductible 33
  37. 37. Taxation of Irish funds 34
  38. 38. Tax treatment Irish management company Irish fund Corporation Tax Rate 12.5% on trading income Tax exempt on income and capital gains 25% on non trading income No net assets tax One of the lowest headline corporation tax rates in the OECD Treatment of Losses Trading losses can be carried back one year Capital losses cannot be offset against against trading income, offset against income capital gains and gains of the current year (and set against non trading income on value basis in current year), and carried forward indefinitely against income of the same trade Filing Requirements Corporation Tax Return filed nine months after Investment Undertaking Returns filed semi accounting year end. Preliminary tax obligations annually- nil returns filed when no taxable payable in two instalments event arises. Double Taxation Treaties 46 countries and 9 under negotiation 46 countries and 9 under negotiation. Ireland recently signed an agreement with Bahrain and treaties with Saudi Arabia, the United Arab Emirates (UAE) and Kuwait are expected to be signed shortly. (Treaty access is dependent on fund structure and relevant jurisdiction). Withholding Taxes on Non Applicable No withholding taxes apply, under domestic Distributions legislation, on income distributions or redemption payments made by a fund to non Irish resident investors once an appropriate non resident declaration is in place. Transaction Taxes No capital duty on issue of shares in Irish Man No capital and stamp duty on issue or Co. 1% stamp duty applies to transfer of shares acquisition of fund units although relief from charge may apply VAT treatment Investment Management activities VAT exempt. Fund activities VAT exempt. Fourth Schedule Fourth schedule services (professional services services (professional services from abroad) from abroad) require Man Co of Fund to self require Funds to self account for VAT on account for VAT on reverse charge basis. reverse charge basis. Possibility of Man Co recouping VAT based on Possibility of Fund recouping VAT based proportions of investments outside EU of funds on proportions of investments outside under management. Possible to recover VAT even EU. Possible to recover VAT even if not if not required to register for VAT (through VAT60E required to register for VAT (through VAT60E procedure). procedure). Controlled Foreign Company No No (CFC) Legislation Banking Secrecy No banking secrecy or exchange of information No banking secrecy or exchange of blockages information blockages Thin Capitalisation Legislation No No Transfer Pricing Legislation No No 35
  39. 39. Services & contacts 36
  40. 40. How PwC Ireland can help... Audit Services services regulation. The regulatory Our audit approach is tailored to and compliance services team suit the size and nature of your provides support and advice to help organisation and draws upon our you identify, manage and control extensive industry knowledge. In any existing and future regulatory addition to the independent audit we risks. Our services can be broadly offer advisory services in the areas categorised under three main of financial reporting, corporate headings: governance, regulatory compliance, independent controls and risk • Market entry; feasibility assessment. studies, authorisation services, governance arrangements, compliance frameworks, capital Tax & Legal Services adequacy arrangements & Our Tax and Legal Services formulates notification assistance effective strategies for optimising taxes, implementing innovative tax • Regulatory risk management planning and effectively maintaining • New regulatory obligations compliance. Advisory Services In recognition of the international tax PwC also provides a full range of issues to be considered in structuring business advisory services for both funds, our specialised tax team works large organisations and independent extensively with our global investment advisors entering the investment fund management teams on an ongoing business. Our business advisory basis. services team can assist clients in making strategic assessments of Regulatory Advisory Services the investment business, preparing PwC has a dedicated regulatory and business plans and economic compliance service team to assist analyses as well as advising on the you with all aspects of financial structure of both the investment 37
  41. 41. advisor and the underlying fund. The maintain cross-border distribution team can also offer advice on systems strategies. Today, through our unique Contacts: and operational needs, identifying Global Fund Distribution (GFD) and selecting outside vendors and service, PwC remains the market Ken Owens preparation of full documentation of leader of solutions for cross-border Partner policies and procedures. fund distribution. Our service includes: PricewaterhouseCoopers 1 Spencer Dock • Market Strategy Global Fund Distribution Services North Wall Quay, Dublin 1, Ireland • Market Entry PwC has an integrated global network Tel: +353 1 792 8542 • Market Reporting Email: of local experts coordinated by a • ETF Listing dedicated central team supporting Pat Candon • Market Publication all aspects of your cross-border fund Partner • Market Intelligence Monitor distribution strategy. PricewaterhouseCoopers • Distributor Analysis 1 Spencer Dock Designing, implementing and • Distribution Model Optimisation maintaining a multi-jurisdictional North Wall Quay, Dublin 1, Ireland Tel: +353 1 792 8538 distribution strategy involves a unique Our Market Share set of challenges. PwC can help with Email: these challenges. We understand the Combined market share by subfund assets Omer Khan interconnected processes and specific Manager local and international resources PricewaterhouseCoopers required for a cross-border strategy 1 Spencer Dock to be sustainable. More than 10 years North Wall Quay, Dublin 1, Ireland ago, PwC pioneered a revolutionary Tel: +353 1 792 8171 and unique service supporting fund Email: promoters to develop, implement and Source: Ireland Funds Encyclopaedia June 2009 38
  42. 42. Mason Hayes+Curran - Irish law firm for investment funds Mason Hayes+Curran is a full service funds), their regulatory classification business law firm with offices in (UCITS or non-UCITS) and specialist Contacts: Dublin, New York and London. vehicles such as professional investor funds, qualifying investor funds, Fionán Breathnach Mason Hayes+Curran’s Investment hedge funds, funds of funds, feeder Partner Funds and Regulatory Unit advises on funds etc. We are currently advising South Bank House, all aspects of investment fund law and one of the first Abu Dhabi-based fund Barrow Street, Dublin 4, Ireland. regulation in Ireland. In particular, we promoters to establish an Irish UCITS Tel +353 1 614 5000 advise fund promoters on structuring, fund. Fax +353 1 614 5001 establishing and listing investment DDI +353 1 614 5080 funds in Ireland and we advise and We have expertise not only in Email: assist fund service providers in the regulation of investment fund establishing operations in Ireland and products but also in the transactions John Kettle provide ongoing legal advice as their entered into by such funds and the Partner business develops. increasingly sophisticated financial 60 Lombard Street, instruments and techniques being London EC3V 9EA Our lawyers in the Investment Funds utilized by asset managers. We Tel : 0044 20 3178 3368 (direct) and Regulatory Unit have a wealth have particular expertise in the Tel: 0044 20 3178 3366 experience in the investment funds area of alternative investments and Fax: 0044 20 3178 3367 industry and have been involved in the are committed to seeing Ireland’s Email: development of policy and regulation continued development as a domicile on behalf of the industry. Our lawyers for regulated hedge funds, to David O’Donnell have advised a wide variety of clients complement its now firmly established Partner on structuring and promoting funds reputation as a jurisdiction of choice South Bank House, authorised by the Irish Financial for the servicing of hedge funds. Barrow Street, Dublin 4, Ireland. Services Regulatory Authority Tel +353 1 614 5000 including funds targeted at the retail At Mason Hayes+Curran we recognise Fax +353 1 614 5001 sector and at a more sophisticated the need for responsive, innovative DDI +353 1 614 5065 investor level. We advise on the and strategic legal advice in this Email: legal structure of funds (investment dynamic industry and our success in companies, unit trusts, limited growing our practice in this area is partnerships and common contractual representative of this. 39
  43. 43. Apex Fund Services Limited - A truly global offering. Our Ethics and business model to be granted a license in the DIFC in investors from the Middle East we can When Apex Fund Services launched July 2006 and have steadily built up maintain the Anti-Money Laundering in 2003 we set-out to address the our business and relationships in that documentation in our offices in that service issues that existed within region opening in Bahrain in 2007, region. This gives additional comfort the industry and held at our core a with offices opening in Saudi Arabia to investors that their personal dedication to ensure that our offering and Abu Dhabi in the early part of information does not travel outside of was client focused. The standards we 2010. the gulf states. laid down were designed to ensure a swift response consistently and with Ancillary services: Our Services the highest levels of service protected • Core Services: Pre launch advice and by SAS 70 Type II independent audits. assistance with fund structuring Fund Accounting Services and establishment, including In 6 years we have grown to a group Apex Fund Services administers recommendation and liaison with of 12 separate offices around the over 250 funds globally ranging from key service providers. world and have held our principles Irish UCITS and non-UCITS funds to true maintaining our service standards offshore products and private equity • Reviewing and commenting and ensuring a global reputation of upon the relevant client offering funds. We prepare daily, weekly, excellence. documents, agreements and monthly NAV’s and provide same day reporting where required which can subscription forms. Strategy also be accessed by the investment • Setting up bank and custody The funds industry through 2003 to manager through our web-portal accounts. 2006 was going through explosive • Liaising with key service providers growth and it was clear that the Asian, throughout the process. Indian and Middle East would emerge Transfer Agency as powerful centres in the emergence We manage the subscription/ • Preparing clients and funds for of new funds and investment redemption process for all of our regulatory approval. management centres. funds and ensure anti-money • Establishing Service Level laundering checks are carried out in Agreements and Key Performance Given this we were quick to ensure full and maintained on our systems. Indicators to monitor performance. that we began to develop strong presences in these regions. We were Within the Middle East we have the first fund administration company the added benefit that for Irish funds with investment managers or 40
  44. 44. Specialist Services of Individual There are over 170 reports available Offices: on our core system from financial, Contacts: portfolio, transfer agency and • Bermuda – Stock Exchange performance reporting. In addition, John Bohan Listing Sponsor. we have worked closely with our Managing Director • Dubai and Bahrain – Acceptance client base in providing an online Apex Fund Services (Ireland) Ltd. web-reporting access to view a large Enterprise House, Watersedge, of Arabic subscription and selection of these reports that our Midleton, Co.Cork redemption documents. Tel: 353 21 46 333 66 clients felt would be most beneficial • Dubai and Bahrain – Expertise Mobile: 353 87 656 0096 to them. Fax: 353 21 46 333 77 with Shari’ah products. Email: • Ireland and Malta – Meeting Website: of SICAV and UCITS reporting requirements. • A secure global operations Craig Roberts network, including 24/7 support Managing Director • Mauritius – Formation of Special operations ensuring a web-based Apex Fund Services (Dubai) Ltd Purpose Vehicles for Private platform is available and reliable. Dubai International Financial Centre Equity Funds as well as tax It is supported with extensive Dubai, United Arab Emirates reporting and advice. disaster recovery and encrypted Tel: +971 (0)4 352 5659 • China – Consulting on the systems security features. Mobile: 971 (0)50 535 0692 structuring and valuation of private Fax : +971 (0)4 352 5662 • Fund Reporting Solutions equity transactions. consolidate data from our Paxus system into a user-friendly Nicolas Angio Systems and technology format for our fund managers to Head of Operations Apex Fund Services continues to use and automates the delivery Apex Fund Services Bahrain WLL focus on technology and delivering on of accounting and portfolio Office #55,Building #44, Road #1701 our clients ongoing needs. information to our fund managers. Diplomatic Area, Bahrain Tourism Company Building, Our technology allows us to fully • Investor Reporting Solutions Manama 317, Bahrain automate every distinct fund type provides continuous on-line Tel: (973) 17 530217 access to investor statements, Mobile: (973) 39 690427 from Private equity capital calls and historical transaction activity, fund Fax: (973) 17 531817 commitments, to master feeder documents and performance structures for offshore funds, to Irish UCITS and non-UCITS. reporting that are continuously available to investors via a secure web platform. 41
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  46. 46. © 2009 PricewaterhouseCoopers/Mason Hayes+Curran/Apex. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a sepa-rate and independent legal entity PricewaterhouseCoopers, One Spencer Dock, North Wall Quay, Dublin 1 is authorised by the Institute of Chartered Accountants in Ireland to carry on investment business. Disclaimer While every care has been taken in the production of this publication, PricewaterhouseCoopers, Mason Hayes+Curran and Apex do not accept any responsibility in respect of anyone or any organisation acting or refraining to act as a result of this publication. In all cases, appropriate professional advice should be sought (02210).
  47. 47. First for business. First for people.