This briefing provides a general outline of the legal, regulatory and tax regime applicable to the formation and operation of investment funds in Ireland. The International Financial Services Centre (“IFSC”) was established in 1987 and introduced tax and other incentives for the establishment of international financial services in the context of a major urban regeneration project in the docklands area of Dublin. The development of the international funds industry in Ireland began in 1989, with the implementation of the EU UCITS Directive. This was followed shortly afterwards by the enactment of a number of other legislative initiatives which were designed to ensure that the full range of fund products familiar to international promoters was available in Ireland. These initiatives were accompanied by tax measures which introduced a tax exemption for Irish funds provided that the funds did not permit Irish resident investors.
Today, the benefits previously restricted to IFSC establishments are more generally
available. Companies are no longer required to locate in the IFSC in order to enjoy a 12.5% corporation tax rate for trading activities, and the tax exempt regime for funds no longer requires the exclusion of Irish resident investors. As a result, the funds industry has matured and expanded outside the IFSC, and Ireland is now recognised internationally as one of the premier global locations for establishing and administering investment funds.
The Central Bank of Ireland (the “Central Bank”) is the financial regulator in Ireland and is responsible for the authorisation and ongoing regulation of all financial services firms and collective investment schemes in Ireland.
Every investment fund established in Ireland must be authorised by the Central Bank in accordance with the requirements set out in the Central Bank’s UCITS Notices (soon to be re-named the “UCITS Rulebook”) and AIF Rulebook.
Principal enactments governing investment funds in Ireland
Undertakings for Collective Investment in Transferable Securities (“UCITS”)
EU Council Directives 85/611/EEC, 2007/16/EC and 2009/65/EC together with
EU Implementing Directives and Regulations and the Irish UCITS Regulations implementing and giving effect to those EU Directives and Regulations
Non-UCITS / AIF Regime
The Alternative Investment Fund Managers Directive (2011/61/EU), the Commission Delegated Regulation of 19 December 2012 (level 2) and European Union (Alternative Investment Fund Managers) Regulations 2013
Part XIII of the Companies Act 1990, as amended
Unit Trusts Act 1990
Investment Limited Partnerships Act 1994
Prospectus (Directive 2003/71/EC) Regulations 2005
Both UCITS and Non-UCITS
Investment Funds, Companies and Miscellaneous Provisions Act 2005
The above body of legislation provides a framework for the establishment,
authorisation and ongoing regulation by the Central Bank of all collective investment schemes established in Ireland.
An Irish UCITS may be established as an investment company, a unit trust or a common contractual fund and must, by virtue of the UCITS Directive, be open- ended.
An Irish non-UCITS fund or alternative investment fund (“AIF”) may be established as an investment company, a unit trust, a common contractual fund or an investment limited partnership and may be either
open-ended or closed-ended irrespective of its legal form. In a closed-ended fund,
investors are prohibited or restricted from redeeming their units during the life of the fund, which must be established for a finite period of time.
The fact that the fund is closed-ended does not, however, prevent investors from
selling their units on the secondary market nor does it prevent periodic subscriptions. Funds which invest in illiquid securities, such as venture capital, property or emerging markets funds, will usually be closed-ended. A closed-ended structure may also be suitable for certain types of structured products. Closed-ended funds are generally subject to the EU Prospectus Directive.
A variety of factors influence the choice of fund structure. The most
important of these are likely to include the profile and location of target investors and the proposed investment policy of the fund. The key issues to be decided are (i) legal form, (ii) umbrella fund or standalone fund and
(iii) UCITS or AIF.
created as public limited companies (plc) under irish
company law, investment
companies are subject to irish company law
There are a variety of legal forms available, each of which is considered in turn below:
This is the most common structure used by funds established in Ireland. The company is incorporated in Ireland and is managed and controlled by its board of directors (of whom at least two must, under the Central Bank’s rules, be Irish residents). The board of directors of an Irish investment company will usually have a minimum of three directors. Although the board of directors may delegate certain duties to third parties (eg investment management duties to an investment manager and administration functions to an administrator), the board
of directors of the company retains the responsibility to ensure that the company is managed in the best interests of the shareholders.
Created as public limited companies (plc) under Irish company law, investment companies are subject to Irish company law requirements.
UCITS Irish company law is generally applicable to a UCITS, save where specifically disapplied or varied by the UCITS Regulations. The UCITS Regulations introduced a new concept in Irish company law, the variable capital company (“VCC”),
and allowed the creation of open-ended investment companies for the first time, reflecting the requirement that all UCITS must be open-ended. In addition, since 2003, a number of the provisions of the Companies Acts, as applicable to public limited companies, have now been disapplied in relation to UCITS companies.
A UCITS will typically be incorporated with two types of shares, namely subscriber shares of €1 each (which are generally subscribed for by the promoter of the
fund) and participating shares. These participating shares have no par value as the actual value of the paid-up share capital reflects the net asset value of the
company. If self-managed, the minimum capital requirement, under the UCITS Regulations, is €300,000 (or equivalent). If a management company is established as part of the fund structure, certain minimum capitalisation rules (described
on pages 5-8, under “UCITS or AIF?”) apply to that entity rather than to the investment company, and the normal general company law rules apply to the capitalisation of the investment company.
Non-UCITS Irish investment funds which are not authorised under the UCITS
Regulations are generally referred to, since the introduction of the European Union (Alternative Investment Fund Managers) Regulations 2013 (the “AIFM Regulations”), as AIFs.
Once again, Irish company law is generally applicable to an AIF investment company, save where specifically disapplied or varied by the Companies Acts. An AIF investment company is established under Part XIII of the Companies Act, 1990 and the AIF Rulebook. Like a UCITS investment company, an AIF investment company will also typically be incorporated with two types of shares, namely subscriber shares and participating shares, and many of the normal company law capital requirements are disapplied or varied in the case of an AIF investment company. The minimum issued share capital of an AIF investment company is two shares of €1 each.
This is the second most common form of fund structure used in Ireland and is available for both UCITS and non-
UCITS. Whilst this vehicle is often used by fund promoters who are marketing
a fund to Irish, UK, US or Japanese investors (as many civil law jurisdictions do not recognise the trust structure), it is not typically used by promoters who wish to sell their funds to continental
European investors, for which purpose the investment company structure is preferred.
A unit trust is constituted by a trust deed made between the trustee and the manager. The trust deed will set out the rules of the fund and the rights of the unitholders. Although the assets of the unit trust are registered in the name of the trustee, the beneficial ownership remains at all times with the unitholders. The trust comes into effect upon the signing of the trust deed.
Common Contractual Fund (“CCF”)
The CCF structure is available in Ireland as both a UCITS and an AIF. A CCF is a collective investment undertaking which is constituted as an unincorporated
body established by a management company. The participants, by contractual arrangement, participate and share in
the property of the collective investment undertaking as co-owners.
The CCF is essentially a facility whereby investors may pool their resources to enable them to be commonly managed for investment purposes provided certain
investor criteria are met. Importantly, the CCF is treated as being transparent for Irish tax purposes (see “Taxation” on page 14).
Irish tax legislation requires, in order for the tax transparent treatment to apply, that all investors in a CCF must be institutional investors. Individuals are not permitted
to invest. In fact, until 2005, only pension schemes could invest in a CCF. It is likely that the CCF will remain most popular with pension funds, given the efficiencies involved in pooling pension fund investments while managing to preserve any tax advantage enjoyed by each investor pension fund.
Investment Limited Partnership (“ILP”)
Introduced in 1994, this structure is the least common in Ireland and has been used on very few occasions. It is available only for AIFs. The ILP is recognised under the laws of a number of countries, including the United States, as a tax-transparent entity.
The rules relating to an ILP are set out in a limited partnership agreement. One general partner, which must be Irish resident, is appointed and this entity has responsibility for running and managing the fund. Investors subscribe to the
partnership as limited partners. A limited partner is not liable for the debts or obligations of an ILP beyond the amount of capital contributed, except where he/it takes part in the business of
the ucits iii product and management company
directives were transposed into domestic law in ireland in 2003.
A new investment fund vehicle is expected to be introduced in early 2014, namely
the Irish Collective Asset-management Vehicle (“ICAV”). The ICAV legislation, when it becomes law, will facilitate the establishment of a new form of Irish corporate investment vehicle. The new vehicle is intended to provide managers and promoters with a structure that is designed specifically for investment funds and which is not subject to rules or requirements applicable to ordinary companies (thereby helping to reduce administrative burden and costs). One of the primary objectives
of the ICAV legislation is to permit the establishment of an Irish authorised corporate fund that can, under US tax rules, make an election (i.e. “check the box”) to be treated as a flow-through or partnership for US tax purposes.
Umbrella Fund or Standalone Fund?
An umbrella fund is a collective investment scheme which is divided into a number of sub-funds and in which the investors are entitled to exchange rights in one sub- fund for those in another. Generally, the sub-funds pursue different investment strategies and each sub-fund has a separate pool of assets. All investment companies constituted as an umbrella fund must provide for segregation of liability between sub-funds.
In addition to being able to establish different sub-funds within an umbrella scheme, an Irish fund may also provide for the establishment of different classes of shares or units within a fund or, in the case of an umbrella fund, within each sub-fund of the fund. Such classes may, for example, provide for different charging structures or different currencies. Unlike sub-funds, a separate pool of assets is not maintained for each class of shares/units.
Prior to 2005, Irish company law prevented cross-investment between sub-funds of the same umbrella investment company. The changes introduced by the Investment Funds, Companies and Miscellaneous Provisions Act 2005 now permit an
umbrella investment company to subscribe for shares in other sub-funds in the same umbrella fund. Cross-investment has always been possible in the context of umbrella unit trusts, CCFs and ILPs.
UCITS or AIF?
The UCITS III Product and Management Company Directives were transposed into domestic law in Ireland in 2003 (both are now reflected in the UCITS IV provisions). The Irish implementing legislation adopted most of the derogations permitted under the Directives.
The Product Directive broadened the scope of permitted investments of a UCITS and provided that a UCITS fund is permitted to invest in transferable securities, money market instruments, units of UCITS funds (or similar funds),
deposits and derivatives (together, UCITS- compliant assets).
This widening of UCITS-compliant assets has resulted in a greater number and variety of funds being established as UCITS where, previously, the investment policy would not have complied with UCITS requirements. This is particularly the
case in relation to structured products. In addition, the EU Commission and ESMA (the “European Securities and Markets Authority”) have, between them, provided useful clarification on certain categories of eligible assets for UCITS, as evidenced by the Commission’s Eligible Assets Directive, published in March, 2007 and, more recently, various guidance notes produced by ESMA.
perhaps the most important aspect of ucits iv is the
introduction of a ucits management company passport.
The Management Company
Directive introduced the concept of giving a management company a ‘European passport’, which is designed to operate
on the basis that once a management company is authorised in its home State, that authorisation extends to all Member States, subject to compliance with host State notifications. The operation of this passport in practice has, however,
to date been limited.
The scope of activities that may be undertaken by management companies was also widened under the Management Company Directive to cover, for example, the management of non-UCITS funds and individual portfolios. The Directive also introduced a requirement for a simplified prospectus, which is intended
to provide more accessible, comprehensive information to strengthen investor protection (the simplified prospectus has now been replaced by the Key Investor Information Document).
The Management Company Directive introduced capital adequacy requirements for the management companies of UCITS. A management company must have an initial share capital of at least €125,000. Where the management company’s assets under management exceed €250 million, the company must provide additional own funds at a rate of 0.02% of the amount of the excess, subject to a cap of €10 million. As mentioned earlier, the minimum capital requirement for a self-managed investment company is €300,000.
An important new development for the UCITS fund product is the introduction of the UCITS IV regime. UCITS IV is designed to make the UCITS product more efficient and easier to distribute on a pan-European basis. UCITS Directive 2009/65/EC (otherwise known as “UCITS IV”) entered
into force on 7 December 2009. The UCITS IV measures came into effect on 1 July 2011.
The key provisions within UCITS IV, from a product perspective, included:
the simplification of the UCITS passport notification procedure, which enables the UCITS fund to be sold on a cross-border basis within 10 business days;
cross-border mergers of funds which will allow for greater consolidation of UCITS funds;
the establishment of master-feeder structures;
enhanced co-operation between EU Regulators.
Perhaps the most important aspect of UCITS IV is the introduction of a UCITS management company passport. This passport will permit a UCITS management company to perform, in another Member State, the activities for which it has been authorised – including setting up and managing UCITS. It effectively will enable an Irish management company to set up, and manage, a non-Irish UCITS funds domiciled in another Member State.
Another significant development of UCITS IV is the introduction of a Key Investor Information Document (KIID) which replaces the simplified prospectus regime which was seen to have many deficiencies. The KIID is a short document containing “key investor information” designed to assist retail investors to understand the product being offered. The KIID must, inter alia, follow a prescribed format, not exceed a double sided A4 sheet in size, be fair, clear and not misleading, adopt “plain English” and include a risk reward profile.
Non-UCITS /AIF Regime
The Non-UCITS/AIF regime has been updated significantly with the introduction of the AIFM Regulations in Ireland in July 2013. Prior to July 2013, the regulatory regime for non-UCITS funds did not include a passport for sale in other EU Member States. It followed, therefore,
that the Central Bank had more flexibility regarding the imposition or relaxation
of conditions generally. While the greater flexibility regarding investment
restrictions remains, funds which operate
under the full AIFMD regime can now also avail of an pan-European passport, similar to UCITS funds, for marketing to professional investors.
The AIFM Regulations transpose the Alternative Investment Fund Managers Directive 2011/61/EU (the “AIFM Directive”) in Ireland. The AIFM Regulations are supplemented by the Central Bank’s AIF Rulebook, updated in July 2013. The AIFM Directive and these local requirements apply to both EU and non-EU managers of alternative investment funds (“AIFMs”) that either manage or market AIFs within the EU. Each AIF is required to have a single AIFM with responsibility for compliance with the relevant requirements. The AIFM Directive has two main stated aims:
to establish a secure and harmonised EU framework for monitoring and supervising the risks that AIFMs pose to AIF investors, counterparties, other financial market participants and to financial stability; and
to permit, subject to compliance with strict requirements, AIFMs to provide services and market their funds across the EU’s internal market (the so-called “passport”).
To date, alternative fund marketing activities have been regulated by a combination of national laws operating separately in different European countries and the general provisions of EU law, supplemented in some areas by industry standards. The AIFM Directive imposes
harmonised conditions and requirements on the structure and operation of AIFMs, in return for which authorised AIFMs will, for the first time, be permitted to avail of a passport to market AIFs to professional investors across the EU. The basic regulatory quid pro quo is that,
unless authorised under the new regime, an AIFM is not permitted to manage or market relevant AIFs.
The AIFM Directive is also concerned with the application of certain rules and requirements relating to delegation by
AIFMs, valuation provisions, remuneration of key executives within the AIFM and leverage rules in respect of the AIF. Requirements have also been imposed regarding the need to appoint a depositary to provide safe custody of the assets of
an AIF and the extent of liability of the depositary losses of financial instruments in custody in connection with those assets.
The two relevant categories of AIFs are qualifying investor alternative funds (“QIAIFs”) and retail investor alternative funds (“RIAIFs”).
All investment and borrowing restrictions which apply to RIAIFs are automatically disapplied in the case of a QIAIF. In addition, a considerable number of the normal requirements applicable to RIAIFs are disapplied by the Central Bank.
A QIAIF must meet the following tests:
have a minimum initial subscription
requirement of €100,000;
Qualifying Investors are defined to
an investor who is a professional
client under MiFID; or
an investor who receives an appraisal from an EU credit institution, a MiFID firm or a UCITS management company that the investor has the appropriate expertise, experience and knowledge to adequately understand the investment in the scheme; or
- an investor who certifies that they are an informed investor by confirming in writing that (a) they have such knowledge of and experience in financial and business matters as would enable the investor to properly evaluate the merits and risks of the prospective investment; or (b) that the investor’s business involves, whether for its own account or the account of others, the management, the acquisition or disposal of property of the same kind as the property of the QIAIF.
Qualifying Investors must certify that they meet the definition of Qualifying Investor set out above and that they are aware of the risks involved in the proposed investment and of the fact that inherent in such investment is the potential to lose all of the sum invested.
An exemption from the minimum subscription requirement and Qualifying Investor criteria is available to certain classes of persons who are directly involved in the management and distribution of the fund (so-called “Knowledgeable Persons”).
If authorised, a QIAIF could seek to:
carry on short selling without
enter into borrowing arrangements
enter into derivative contracts (including the buying and selling of futures and options) and repurchase, reverse repurchase and stock-lending arrangements in order to purse hedge fund strategies.
The Central Bank operates a one-day authorisation procedure for QIAIFs and new sub-funds of existing QIAIFs provided certain conditions are met.
A RIAIF is an alternative investment fund authorised by the Central Bank which may be marketed to retail investors. A RIAIF has no regulatory minimum subscription. The Central Bank has set out, in Chapter 1 of the AIF Rulebook, general investment and borrowing restrictions applicable to RIAIFs. An AIFM cannot market a RIAIF
separate rules apply to funds of hedge funds which are
established as qiaifs.
on an AIFMD passported basis to non-Irish investors that are not professional investors for AIFMD purposes.
An entity performing activities as an AIFM within the meaning of the AIFM Regulations before 22 July 2013 is entitled to avail of a 12 month transitional period during which it is required to comply with the AIFM Regulations on a “best efforts basis”. However, this transitional period is
set to expire on 22 July 2014, at which point any entity wishing to continue to carry out AIFM activities will be required to apply
to the Central Bank for authorisation as an AIFM. The non-UCITS series of Notices will continue to apply to a non-UCITS investment fund existing prior to 22 July 2013 until such time as its AIFM converts to the AIFMD regime which, in any event, should be no later than 22 July 2014. Once an Irish fund is authorised under, or
has converted to the AIFMD regime, the provisions of the AIF Rulebook will then apply in place of the non-UCITS series of Notices.
Hedge Funds the regulation of hedge funds in Ireland merits special mention. (In the present context, the term “hedge fund” is used to describe a fund which adopts a non- traditional investment strategy, engages in short selling, uses leverage and appoints a prime broker.)
The nature of the investment policy followed by hedge funds means that they are generally established as QIAIFs.
Until relatively recently, very few hedge funds had been established in Ireland, the main reason being that the Central Bank’s rules relating to custody of fund assets were incompatible with the manner in which prime brokers normally deal with the assets of a fund.
The Central Bank has, however, modified its requirements in this area insofar as they apply to QIAIFs which means that QIAIFs can enter into prime brockerage relationships.
Regulation by the Central Bank
The Central Bank’s Role: The Central Bank of Ireland is the regulatory authority in Ireland responsible for authorising and regulating Irish
The duties of the Central Bank include the following:
approval of fund promoter, investment manager and management company;
approval of directors appointed to investment company/management company;
approval of fund administrator and custodian/trustee and, for hedge funds, prime broker arrangements;
authorisation and ongoing supervision of Irish funds;
approval for marketing in Ireland of non- Irish investment funds; and
enforcement of anti-money laundering regulations under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010.
For the Central Bank’s purposes, the promoter (which may also be the investment manager) is the entity which is responsible for the establishment of the fund. The promoter must normally be approved by the Central Bank in advance of submission of an application for fund authorisation.
It is worth noting that the Central Bank no longer applies a promoter approval regime in respect of AIFs and proposals are also underway to remove the promoter approval requirement in respect of UCITS funds.
Regulation by the Central Bank
companies that are on the
mifid register are not subject to an approval process.
The principal service providers to any investment fund are the investment manager, the administrator, the depositary and, for hedge funds, the prime broker. Under the Central Bank’s rules, the investment manager and the prime broker may be located outside of Ireland, whereas the administrator and depositary must be located in Ireland.
The overall investment strategy of the fund is laid down by the board of directors
(in the case of an investment company), the manager (in the case of a unit trust and a CCF) or the general partner (in the case of an investment limited partnership). The function of the investment manager is to take the day-to-day investment decisions in relation to the fund.
EEA-based investment management companies that are on the Central Bank’s MiFID register are not subject to an approval process. In the case of EEA investment management companies that are not on the Central Bank’s
MiFID register, the Central Bank will require confirmation from the home State regulator that the investment
management company has the appropriate regulatory status. For non-EEA investment management companies, the Central Bank will normally apply a detailed review and approval process.
Once an investment manager has been approved by the Central Bank, it does not need to undergo the approval process again each time it is appointed as investment manager to additional funds.
Where the investment manager retains the discretionary investment management function, an investment adviser or sub- investment manager is not required to be approved by the Central Bank.
The administrator of an Irish-authorised fund must be incorporated in Ireland. The administration of collective investment schemes (whether Irish or non-Irish) is a regulated activity under the Investment Intermediaries Act 1995 (as amended), and any firm carrying out fund administration activities in Ireland must be authorised by the Central Bank under that Act.
The following administrative activities form the basis of the administrator’s duties:
calculation of net asset value and dealing price, including pricing of the underlying securities;
maintenance and updating of accounting records;
preparation of annual and semi-annual financial statements;
reconciliation of investment and cash positions with custody records;
maintenance and servicing of investor register; and
correspondence with investors, including maintenance and issue of subscription and redemption documentation.
Typically these activites are required to be carried out in Ireland. However the
Central Bank has introduced requirements on outsourcing of administrative activites which are intended to promote greater consistency of approach and certainty in relation to the principles applied by the Central Bank in relation to outsourcing by administration firms of services provided to collective investment schemes. For
Irish-authorised funds, these functions are normally outsourced to a third party fund administrator. Additionally, it is common that a separate division (often referred to as ‘transfer agency’ or shareholder services’) of the administration company deals with the issue and redemption of shares/units and investor queries, although these can be outsourced to a separate company.
Regulation by the Central Bank
the central bank requires that
the management company or
general partner of an irish-
authorised fund be incorporated in ireland.
The Central Bank has laid down rules regarding the duties and conditions relating to the depositary of an Irish- authorised investment fund.
The depositary must:
hold the assets of the fund in safekeeping;
ensure that the issue and redemption of shares/units to investors are carried out in accordance with the fund’s
constitutive documentation and relevant regulations;
ensure that the net asset value per share/ unit is calculated in accordance with the constitutive documents;
ensure that the fund’s income is applied in accordance with the constitutive documents; and
enquire into the conduct of the fund during each financial year and report thereon to investors.
Where the assets of a UCITS or an AIF are further entrusted to a sub-custodian, the custodian must exercise care and diligence in choosing and appointing a sub-custodian to ensure that the sub-
custodian has and maintains the expertise, competence and standing appropriate to discharge the responsibilities concerned. The depositary must also maintain an appropriate level of supervision and must make appropriate enquiries from time to time to ensure that the obligations of the sub-custodian continue to be competently discharged.
The depositary of an Irish-authorised fund must be:
a credit institution authorised in Ireland;
the Irish branch of an EU credit institution; or
an Irish-incorporated company which is wholly owned by an EU credit institution, or equivalent in a non-EU jurisdiction, provided that the liabilities of the Irish company are guaranteed by the parent institution.
A fund which is established as an investment company does not require a management company and can be
managed directly by its board of directors. A fund promoter may, however, wish to establish a management company within an investment company structure for branding or tax efficiency purposes. Unlike an investment company, a unit trust and
a CCF must always have a management company and an investment limited partnership must always have at least one general partner. The Central Bank requires that the management company or general partner of an Irish-authorised fund be incorporated in Ireland.
Where a management company or a general partner is being established, certain requirements apply. In the case of a UCITS, the UCITS Regulations apply, the relevant requirements of which are set out above (see “UCITS or AIF” on pages 5-6).
On the alternative fund side, AIFMs are regulated under the AIFM Regulations and the AIF Rulebook. AIFMs may be fully authorised under the AIFM Regulations
or simply registered. Authorised AIFMs are subject to the full requirements of the AIFM Regulations but have the ability to use the AIFM management passport and market the AIFs under management throughout the EU. Registered AIFMs, on the other hand, are not subject to the full set of requirements laid out in the AIFM Regulations and cannot avail of the EU passport.
Approval of Directors - Fitness & Probity
On 1 September 2011, the Central Bank published new fitness and probity standards (the “Standards”) for persons performing certain prescribed “controlled functions” (“CF”) or “pre-approval controlled functions” (“PCF”) in regulated entities in Ireland (including regulated funds and their service providers). The Standards apply to persons performing any prescribed function (ie a CF or a PCF) in such an organisation and are built on requirements of competence, capability, honesty, integrity and financial prudence. The regulated entity must not permit a person to perform a CF or a PCF unless it is satisfied on reasonable grounds that the person meets the Standards. In addition, a
PCF (which would include any director to a fund/management company) must undergo a pre-approval process (which involves the completion of an individual questionnaire) with the Central Bank.
Corporate Governance Code
A corporate governance code (the “Code”) for the Irish funds industry was published on 14 December 2011. The Code applies to Irish regulated funds and their managers. The aim of the Code is to provide a framework for the organisation and operation of investment funds to ensure that funds operate efficiently and in the interests of shareholders. The Code was prepared in response to an invitation to the Irish Funds Industry Association by the Central Bank to formulate an appropriate code for Irish investment funds. The Code became effective from 1 January 2012 and
a transitional period of 12 months was granted with most funds adopting the Code from 1 January 2013.
All Irish investment funds authorised by the Central Bank which are available to the public are exempt from tax on their income and gains
irrespective of where their investors are resident. No Irish stamp, capital or other duties apply on the issue, transfer or redemption of shares/units in a fund.
there is no irish tax for investors that are not
within the scope of irish tax.
An exit tax regime applies to funds set up as an investment company, a unit trust or an ILP. Under this regime, no withholding tax applies on payments to non-Irish resident investors and certain Irish resident investors once certain declarations
have been put in place or the fund has recieved approval in respect of ‘equivalent measures’.
Funds set up as CCFs are treated as tax transparent entities and as such the income and gains of a CCF are treated as if they directly accrue to the investors from the underlying assets. No withholding tax applies on any payments made by a CCF. There is no Irish tax for investors that are not within the scope of Irish tax. Note, however, that individuals are not permitted to invest in CCFs.
Certain services supplied to a fund are VAT exempt activities. The principal exemptions relate to discretionary investment management services, administration services (including corporate administration) and marketing services. Custodial services are also
generally exempt from VAT. Other services provided to a fund may create a VAT cost. VAT recovery is, however, available to the extent that the fund has either non-EU assets or non-EU investors.
Ireland has an extensive network of double taxation agreements (“DTA”s). Access by
a fund to these treaties can, however, be restricted because of the tax exempt nature of Irish funds. Treaty benefits have been obtained from a number of Ireland’s treaty partners, and each jurisdiction should
be reviewed on a case by case basis to determine whether DTA access is possible.
It is important to ensure that an Irish- authorised fund is resident in Ireland for the purposes of Irish taxation.
A fund established as an investment company will be regarded as tax resident in Ireland if its central management and control is exercised in Ireland.
An Irish unit trust is generally regarded as tax resident in Ireland on the basis that the trustee is resident in Ireland.
An Irish ILP is treated in Ireland, as well as in many other jurisdictions, as being tax transparent, in which case it is the
residence of the individual limited partners which will be relevant in determining tax status.
An Irish CCF is tax transparent and, therefore, does not have a ‘residence’ for the purposes of Irish tax.
Every investment fund established in Ireland must be authorised by the Central Bank in accordance with the requirements set out in the
Central Bank’s UCITS Notices or AIF Rulebook. The Notices (together with Guidance Notes) and Rulebook set out detailed regulations and
policies for all categories of funds, including investment and borrowing
restrictions, covering both initial authorisation and ongoing supervision.
In addition to setting out the requirements for the authorisation of investment funds, the Notices, Guidance Notes and AIF Rulebook issued by the Central Bank cover issues such as the content of prospectuses, the administrative activities which must be carried out in Ireland, the duties of fund administrators and depositaries
and the ongoing reporting obligations of authorised funds.
Process and Timing
The Central Bank has made a general commitment to authorise funds within six to eight weeks from the date of submission of an application, provided the application is complete. Complex funds such as hedge funds, exchange-traded funds and property funds may take a little longer.
Set out overleaf is an outline of the authorisation process, for funds other than QIAIFs, together with the timing associated with each stage.
The fund’s legal advisers will prepare, in consultation with the promoter/investment manager and other relevant parties, the following documentation in connection with the application:
the Central Bank Application Form;
Prospectus or Offering Memorandum: this is the principal document which sets out all of the key information relating to the fund;
Memorandum and Articles of Association (in the case of an investment company), Trust Deed (in the case of unit trust), Deed of Constitution (in the case of a CCF) and Partnership Agreement (in the case of an ILP): these are the constitutive documents of the chosen fund vehicle;
Management Agreement, Investment Management Agreement, Investment Advisory Agreement and Distribution/ Paying Agency Agreement.
The fund’s legal advisers will negotiate the depositary agreement and administration agreement with the relevant parties and submit the negotiated drafts to the Central Bank as part of the application process.
Only the Central Bank application form, draft prospectus and depositary agreement are reviewed by the Central Bank. For
all other documents, the Central Bank requires the fund’s legal advisers to certify compliance with the relevant regulations and the documents are filed
with the Central Bank immediately prior to authorisation of the fund.
Submit fund application form and obtain promoter/investment
manager approval, as required.
Submit first drafts of fund documentation to the Central Bank.
it should be
noted, also, that the prospectus
for a closed-
ended fund that will be issued
the prospectus directive will continue to
be subject to
approval in the usual way.
The Central Bank reverts with comments on the draft documentation.
Re-submit revised draft documentation, with the Central Bank’s comments addressed.
The Central Bank may revert with further comments on fund
Submit revised drafts of fund documentation, with the Central Bank’s further comments addressed.
Board Meeting of the fund (in the case of a company) or of the Manager (in the case of a unit trust or CCF) is held in order to approve the Prospectus and approve and execute agreements.
The Central Bank signs off on fund documentation and confirms it has no further comments. Documentation is submitted to the
Central Bank in executed final form. The Central Bank issues letter of authorisation.
One-day Authorisation Process for QIFs
Provided the Central Bank receives a complete application for the authorisation of a QIF before 3.00pm on a particular day, a letter of authorisation for that QIF can be issued on the following business day. A prerequisite to the new procedure being available in a particular case is that the
promoter, investment manager, depositary, administrator and all of the directors of the QIF must be approved in advance by the Central Bank. Furthermore, any policy
issues relating to the QIF must be cleared in advance with the Central Bank.
It should be noted, also, that the prospectus for a closed-ended fund that will be issued pursuant to the Prospectus Directive will continue to be subject to approval in the usual way.
The investment company or management company, as appropriate, is required to certify that all of the fund documentation complies, in all material respects, with the Central Bank’s Notices, Guidance Notes and AIF Rulebook (where appropriate).
In addition, the depositary of the QIAIF must provide a similar confirmation in relation to the provisions of the custodian agreement or trust deed.
Stock Exchange Listing
in the case of a closed-ended fund, certain additional
requirements may apply by virtue of the application
of the eu listing
The main reason for obtaining a stock exchange listing for a fund is to facilitate the marketing of the shares/units to specific categories of investors. Institutional investors, in particular, are often restricted or prohibited from investing in unlisted securities or in securities which are not listed on a recognised or regulated stock exchange. For other categories of investors, also, a listing on a recognised stock exchange will often mean that the shares/units qualify as an eligible security for investment purposes.
Directives. Since 1989, the Irish Stock Exchange (the “Exchange”) has maintained a successful
track record in the listing of investment funds. The Exchange is a recognised EU stock exchange and has been recognised by the marketing authorities in all of the main jurisdictions, including the US and Japan.
The Exchange has a detailed set of rules for listing investment funds. These rules vary to some extent depending on the domicile of the fund. The Exchange has developed listing rules that provide a streamlined approach for the listing of investment funds that are authorised by the Central Bank. In general, an open-ended fund that is authorised in Ireland by the Central Bank and prepares combined listing particulars with the initial prospectus will be deemed to have complied with all of the Exchange’s listing requirements. In the case of a closed-ended fund, certain additional requirements may apply by virtue of the application of the EU Listing Directives.
Before a fund can be listed on the Exchange, it must appoint an approved Listing Sponsor which is registered
at the Exchange. The Listing Sponsor is responsible for ensuring the fund’s
suitability for listing prior to submission of an application, for submission of the listing application and for dealing with the Exchange on all matters in relation to the application. In the case of an Irish- domiciled fund, an application for listing
will usually run in parallel with the Central Bank authorisation process.