Investment Funds

The Irish government recognised the importance of the investment funds industry within the financial services sector and was one of the first EU administrations to transpose the EU Directive on Undertakings for Collective Investment in Transferable Securities (UCITS) (Directive 85/611/EEC) (the UCITS Directive) into its national law. It quickly followed up with legislation to provide for non-UCITS type investments funds and amended the Irish taxation legislation to provide that investment funds would not be liable to Irish tax. The Irish Financial Regulator has taken a balanced, pragmatic and dynamic approach to its regulatory duties which has enabled a full range of fund products to be developed and offered out of Ireland.

Ireland is now globally recognised as one of the leading jurisdictions in which to establish and administer regulated funds. This has been mainly a result of the high level of expertise that has been developed within the service provider industry including legal advisors, auditors, tax advisors, compliance, listing and other industry specialists. There are more than 9,000 people employed in the Irish funds industry with over €1.5 trillion being serviced here.

The Regulatory Authorities

The Financial Regulator is the competent authority in Ireland for the purposes of the regulation of UCITS funds and non-UCITS funds. It is also the supervisory authority for the authorisation and regulation of providers of investment services in Ireland which services include giving of investment advice, provision of fund administration and custodial services and receiving, transmitting and executing orders in relation to securities.

The Irish Stock Exchange Limited (the ISE) is the regulatory authority of the Irish Stock Exchange and is the global leader for the listings of investment funds. Many promoters choose to list their funds on the Irish Stock Exchange as their target institutional investors may be constrained to invest only in listed securities or securities which are listed on a recognised and regulated stock exchange. The ISE has a streamlined application procedure for the listing of units/shares of Irish authorised funds.

Types of Funds

The principal forms of funds under management in Ireland are:

UCITS funds constituted in the form of (i) unit trust, (ii) investment companies with variable share capital, and (iii) common contractual funds;
Non-UCITS funds constituted in the form of (i) unit trusts, (ii) investment companies with variable share capital, and (iii) contractual funds;
Funds may also be established in other forms such as investment limited partnerships.

UCITS

UCITS are open ended funds authorised pursuant to the UCITS Directive. Funds located in Ireland may be operated in all EU member states without the need for further authorisation and subject only to local market and regulations.

Non-UCITS

Non-UCITS funds can be established in three regulatory categories: (i) retail, (ii) professional investor; and (iii) qualifying investor. Retail non-UCITS are subject to similar conditions and restrictions in relation to investment and borrowing as UCITS funds. These conditions and restrictions are relaxed somewhat for professional investor funds. The conditions and restrictions relating to investment and leverage do not apply almost in full in respect of funds which are marketed solely to qualifying investors. The investors themselves must also meet a qualifying investor test.

Taxation of Funds

Unless an investor in an Irish fund is resident or ordinarily resident in Ireland, generally there is no tax payable in Ireland on either a fund’s income and gains or in respect of any payments received from the fund by the investor.

Irish regulated funds, however they are constituted, are not subject to tax on their income and gains but instead operate an exit tax regime where a potential tax liability only arises in respect of certain chargeable events such as a payment of any kind to an investor,or a transfer of units. In certain circumstances, the fund may elect not to operate the exit tax on such a deemed chargeable event, in which case it must report certain investor details to the Irish Revenue and the tax liability arises on the investor on a self assessment basis. However, such an exit charge tax only arises to the extent and only in respect of Irish resident or ordinarily resident investors.

Many categories of Irish resident investors are entitled to an exemption from this exit tax including pension schemes, insurance companies, other funds, charities, approved retirement funds, approved minimum retirement funds, special savings, incentive accounts and PRSAs and credit unions.

Service Providers

Funds established in Ireland are required to appoint (i) an Irish-based custodian to act as a custodian/trustee of Irish authorised funds for the safe keeping of the funds assets and (ii) an Irish based administrator responsible for maintaining the accounts and records of the fund. All leading global custodians and administrators, who must be approved by the Financial Regulator, have operations in Dublin.

The investment manager for an Irish fund is not required to be located in Ireland but must seek the approval of the Financial Regulator.

A fund set up as an investment company must have at least two Irish resident directors. The management company of unit trust or a CCF must also have at least two Irish resident directors.

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