The Qualifying Investor Alternative Investment Fund ("QIAIF") is a regulated alternative investment fund structure targeted at sophisticated and institutional investors. The QIAIF has a number of advantages over other fund structures, not least the fact that it can avail of a 24-hour fast track approval process with the Central Bank of Ireland ("Central Bank"). This briefing focuses specifically on the establishment of QIAIFs under the one-day filing procedure.
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. The Central Bank regulates two types of alternative investment fund ("AIF") structures, namely QIAIFs and Retail Investor AIFs ("RIAIFs"), both of which were introduced in connection with the implementation of the Alternative Investment Fund Managers Directive (Directive 2011/61) ("AIFMD") in Ireland.
The QIAIF is the successor of the pre-AIFMD qualifying investor fund ("QIF") which was, before its replacement, one of Ireland's must successful fund structures and an attractive option for fund managers, particularly when establishing real estate funds, private equity funds, infrastructure funds, loan funds and hedge funds. As the QIF's successor, the QIAIF benefits from its proven track record as a regulated and flexible fund structure for AIF managers. In addition, QIAIFs which operate under the full AIFMD regime can avail of the AIFMD pan-European passport for investment funds.
Regulatory Framework for QIAIFS
Both QIAIFs and RIAIFs are subject to AIFMD which was transposed into Irish law by the European Union (Alternative Investment Fund Managers) Regulations 2013 ("AIFM Regulations"). These Regulations are supplemented by the Central Bank's AIF Rulebook. The Central Bank has also issued AIFMD Q&A setting out answers to queries likely to arise in relation to the implementation of AIFMD in Ireland. The AIFM Regulations and the Central Bank's AIF Rulebook apply to both EU and non-EU alternative investment funds managers ("AIFMs") that either manage or market AIFs within the EU.
A QIAIF may be established as an Irish Collective Asset-management Vehicle ("ICAV"), an investment company, a unit trust, a common contractual fund (`CCF') or an investment limited partnership (`ILP').
In the past, both QIAIFs and QIFs were usually established as either investment companies or unit trusts. However, it is expected that the ICAV will replace these as the vehicle of choice for investment funds, following the enactment of the ICAV Act in March 2015. The ICAV is a bespoke corporate vehicle for investment funds and has a number of advantages over other types of fund vehicles. In particular, in contrast to an investment company an ICAV is entitled to elect (ie `check the box') to be treated as a flow-through or partnership for US tax purposes. See our related briefing here.
Characteristics of a QIAIF
A QIAIF has two main characteristics:
The minimum subscription must be at least 100,000 or its equivalent in another currency.
As the name suggests, only Qualifying Investors can invest in a QIAIF. A Qualifying Investor is:
- 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 it has the appropriate expertise, experience and knowledge to adequately understand the investment; or
- an investor who certifies that it is an informed investor.
An "informed investor" is an investor that provides a written confirmation that (i) it has such knowledge of, and experience in, financial and business matters as would enable it to properly evaluate the merits and risks of the prospective investment or, (ii) that its business involves, whether for its own account or the accounts of others, the management, acquisition or disposal of property of the same kind as the property of the fund.
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")
QIAIFs - Key Advantages
A QIAIF has a number of key advantages, as compared to other types of fund structures. These include the fact that a QIAIF:
- can avail of an EU-wide marketing passport when managed by an EU-based AIFM and can be distributed freely to professional investors across the EU;
- is not subject to Central Bank investment restrictions or to any borrowing or leverage limits;
- is not subject to risk diversification requirements, save that, in the case of investment companies, a QIAIF must observe the general principle of risk spreading; an ICAV is not subject to this requirement.
- benefits from a fast-track approval process meaning that it can be authorised within a 24-hour period; and
- is subject to a favourable tax regime which ensures that Irish QIAIFs are not subject to Irish tax on their income, gains or dividend payments to non-Irish investors.
QIAIF One-Day Authorisation Procedure
Provided the Central Bank receives a complete application for the authorisation of a QIAIF before 3pm on the business day before the application for authorisation, the QIAIF will be authorised on the next business day.
A pre-requisite to this procedure being available in a particular case is that the Central Bank pre-approves the AIFM, investment manager, depositary, administrator and all of the directors of the QIAIF (where a QIAIF is structured as an investment company).
Furthermore, any policy issues relating to the QIAIF 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 fund and/or AIFM, as appropriate, is required to certify that all of the fund documentation complies, in all material respects, with the AIF Rulebook. In addition, the QIAIF's depositary must provide a similar confirmation in relation to the provisions of the custodian agreement or trust deed.
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. In addition, no withholding tax applies on payments by a fund to non-Irish resident investors and certain Irish resident investors once certain declarations have been put in place, or the fund has received approval in respect of "equivalent measures".
No Irish stamp, capital or other duties apply on the issue, transfer or redemption of shares/units in an Irish authorised fund.
Funds set up as an ICAV may elect to be treated as "pass through" entities for US federal tax income purposes and as such the income and gains of an ICAV are treated as if they directly accrue to the investors from the underlying assets. CCFs are tax transparent, as are, in some instances, Irish unit trusts and investment limited partnerships.
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, generally available to the extent that the fund has either non-EU assets or non-EU investors.
Ireland has signed comprehensive double taxation agreements ("DTAs") with over 70 countries. Access by a fund to these treaties can, however, be restricted because of the tax exempt nature of Irish funds, and each jurisdiction should be reviewed on a case by case basis to determine whether DTA access is possible.