1 Establishing a Private Equity Fund in Ireland Irish Tax Firm of the Year 2013, The International Tax Review Client Choice 2013, International Law Office Ireland s most innovative firm in finance law 2012, Financial Times Ireland s most innovative firm in corporate strategy 2012, Financial Times Dublin London New York Palo Alto
2 1 This brochure provides information in relation to the establishment of private equity funds in Ireland, the structures available for use, the relevant tax treatment and the steps necessary to launch a private equity fund. This brochure also outlines the advantages of Ireland as a domicile for private equity funds. Matheson Our primary focus is serving the Irish legal needs of international companies and financial institutions doing business in and through Ireland. We regard efficiency, responsiveness and a practical and commercial approach to problem-solving as vital to the provision of first class legal advice to our clients, which include over half of the Fortune 100 companies, 27 of the world s 50 largest banks, as well as some of the largest public, private and State owned companies and institutions in Ireland. Our firm is headquartered in Dublin, with offices in London, New York and Palo Alto. With over 350 legal and tax professionals, more than 600 people work across our four locations. Matheson is consistently recognised for its excellence and in 2013 was awarded, for the seventh time in the past eight years, the International Law Office Client Choice Award for Ireland. In 2011, Matheson was named the Irish Law Firm of the Year at The Lawyer European Awards for the second consecutive year. The Asset Management and Investment Funds Group Headed by a former chairman of the Irish Funds Industry Association and with eight partners and 40 fund professionals in total, including a full offering from our New York office, Matheson s Asset Management and Investment Funds Group is the leading UCITS and alternative investment fund practice in the Irish market. It is ranked a tier one practice group by Chambers Europe, the European Legal 500 and PLC. In recognition of its expertise in alternative investments, Matheson was the first Irish law firm to be named European Law Firm of the Year by The Hedge Fund Journal and in 2011 was named the Funds Europe European Adviser of the Year. The Asset Management and Investment Funds Group has significant experience in advising on private equity structures for large institutional asset managers and specialist private equity managers, including the following structures: Private Equity Fund of Funds and Feeder Funds gaining exposure to structures in Cayman, Jersey, Bermuda, Guernsey and a number of other domiciles worldwide Renewable Energy Funds Bank Loan Funds Irish, European and US Commercial and Residential Property Funds Funds gaining exposure to structured debt products Funds gaining exposure to pharmaceutical royalty stream Life Settlement Funds The Asset Management and Investment Funds Group offers a comprehensive and innovative advisory service to clients. In addition to asset management advice (including tax advice) on the structuring and establishment of private equity funds, the group can draw on the resources of: a regulatory risk management and compliance unit; a specialist outsourcing group and company secretarial unit; a dedicated derivatives team; and a corporate department advising on the corporate, regulatory and M&A aspects of our clients businesses in Ireland. This results in our having an unrivalled capacity to provide combined asset management, tax, regulatory, corporate and derivatives advice to private equity clients.
3 2 Private Equity Transactions With regard to M&A transactions: Matheson is the leading Irish advisor on cross border M&A deals involving Ireland for the past five years Matheson has advised on more Irish / Transatlantic deals than any other Irish or International law firm in the last five years Matheson advised on the biggest Irish deal and the largest deal globally in 2012 The Private Equity Group within our corporate department has extensive experience in structuring and executing acquisition, financing and exit transactions, and our lawyers consistently advise on the leading private equity deals in the Irish market. Our Private Equity Group represents a broad range of Irish and international financial investors, ranging from private equity houses, banks and other financial institutions to specialist infrastructure and private equity property funds and corporate venture investors. The group also represents and advises target companies and management teams on transactional and governance matters. The Private Equity Group is characterised by a partner-led approach, top quality service, commercial judgment and sector-specific knowledge across a wide range of industries. It is a highly integrated multi-disciplinary group, led by lawyers from our market leading corporate team who work closely with our experts in all the key practice areas, including leveraged and acquisition finance, private funds, restructuring, compliance, anti-trust/competition, tax and employment. Our strong industry sector focus gives us a deep understanding of the issues and challenges facing our clients and allows us to provide commercial, sector-specific advice which enhances our value offering.
4 Contents 3 1 Structuring a Private Equity Fund in Ireland 4 2 Alternative Investment Fund Managers Directive and other Regulatory Developments Impacting Private Equity Funds 10 3 The Authorisation Process for a Private Equity QIAIF 15 4 Taxation of Irish Domiciled Private Equity Funds 18 5 Advantages of Ireland as a Funds Domicile 20 6 Contacts 22
5 1 Structuring a Private Equity Fund in Ireland
6 1 Structuring a Private Equity Fund in Ireland Why Ireland? Ireland s most popular alternative investment fund vehicle, the Qualifying Investor Alternative Investment Fund ( QIAIF ) (which replaced the Qualifying Investor Fund ( QIF ) following the implementation of the Alternative Investment Fund Managers Directive ( AIFMD )), offers a trusted, flexible and efficient route for private equity fund managers to comply with the requirements of, and to avail of the marketing benefits of, AIFMD. Ireland was the first European jurisdiction to provide a structure for a dedicated alternative investment fund product in 1990 and since then Ireland has become the domicile of choice in respect of the establishment of regulated alternative investment funds and a centre of excellence in the servicing of alternative investment funds, including private equity funds. Since 1990, Irish service providers and the Central Bank of Ireland (the Central Bank ) have worked to develop solutions to allow the effective and practical implementation of alternative investment strategies in a regulated structure. This has meant that Ireland maintains a distinct advantage as a jurisdiction for funds intending to pursue alternative investment strategies, including private equity funds. The QIAIF offers the characteristics and flexibility of the typical private equity fund product while authorised and regulated by the Central Bank and offering the AIFMD compliant standard which is likely to be increasingly sought by investors. Figures from the Central Bank in December 2012 reported that the assets of Irish domiciled qualifying investor funds had reached a record high of 204 billion, up over 40% from the end of The growth figures for QIFs suggest that alternative managers were turning to Irish funds in preparation for the transposition of the AIFMD into national law in July Total assets and number of sub-funds of Irish Qualifying Investor Funds (Eur Billion) 250 AIFMD Dec Net Assets Number of Funds Source: Central Bank of Ireland Dec 2012
7 1 Structuring a Private Equity Fund in Ireland 6 The number of QIFs reached a new peak of 1,664 in December 2012 Over 17% growth in 2012 alone Doubling of QIF funds since the initial publication of AIFMD in April 2009 Irish Administered Alternative Investment Funds Total Estimated Irish Administered AIF Assets Rest of the world 59% Ireland 41% Source: HFM Week, IFIA Q The European Venture Capital Association Yearbook for 2012 shows that 40 billion was raised in Europe last year across the industry as a whole. This represents the highest fundraising level seen since 2008 and an 80% increase on Ireland offers an excellent platform for private equity managers seeking to access Europe.
8 1 Structuring a Private Equity Fund in Ireland Regulatory Framework for Private Equity Funds The regulatory framework within which a private equity fund established in Ireland can sit is, in the vast majority of cases, best served by the highly flexible QIAIF. Legal vehicles through which a private equity QIAIF can be structured include the investment company, the investment limited partnership, the unit trust and the common contractual fund. For the purposes of this document, we proceed with an overview of a private equity QIAIF established as an investment company pursuant to Part XIII of the Companies Act 1990, as an investment limited partnership pursuant to the Investment Limited Partnerships Act 1994 ( ILP Act ) or as a unit trust pursuant to the Unit Trusts Act 1990 as these are the best positioned and, in the case of the ILP, the most recognisable and widely used investment fund vehicles globally for private equity funds. Each of the QIAIF vehicles is considered more fully in our Establishing a Qualifying Investor Alternative Investment Fund in Ireland Brochure. Investment Company An investment company is an entity with distinct legal personality which is managed and controlled by its board of directors and can enter into contracts in its own name. The assets are the property of the company, and each investor holds shares in the company. A depositary is appointed to safe-keep the assets on behalf of the company. An investment fund established as a company may be self-managed, or appoint a management company. It must have as its aim the spread of investment risk. The paid up share capital of the company must at all times equal the net asset value of the company, the shares of which have no par value. The constitutional document of an investment company is the memorandum and articles of association. Liability of shareholders in a private equity fund established as an investment company is limited. Irish company law grants certain rights to shareholders of investment companies that do not apply to other forms of QIF including the ability to convene meetings and remove directors. An investment company is required to have two Irish resident directors. A typical investment fund company structure is illustrated below. Investment Fund Company with no Irish Domiciled Management Company Shareholders Investment Company (Ireland) Depositary (Ireland) Administrator (Ireland) Investment Manager (any Location) Global Sub-custodian (any location)
9 1 Structuring a Private Equity Fund in Ireland 8 Investment Limited Partnerships An investment limited partnership is created by contract between the general partner(s) (at least one of which must be Irish and such general partner must have two Irish resident directors) and one or more investors who participate as limited partner(s). The ILP is not incorporated and is not a separate legal entity. An ILP does not therefore have power to enter contracts in its own name. The general partner usually enters into contracts for the account of the ILP. As with the investment company, a depositary is required to safe-keep the assets of the ILP. There is no requirement under the ILP Act for an ILP to operate on the principle of risk spreading. ILPs can be dedicated investment vehicles or offered on a private placement or public basis. There is no limit on the number of limited partners permitted for an ILP. The general partners of an ILP are responsible for the management of its business and are liable for the debts and obligations of the ILP. In general, a limited partner s liability will not exceed the amount of its capital contribution or commitment to the ILP. A typical ILP structure is illustrated below: Investment Limited Partnership General Partner (Ireland) Partnership Agreement Limited Partner (Investors) Administrator (Ireland) Investment Manager (any location) Depositary (Ireland) Global Sub-Custodian (any location) Unit Trust A unit trust is created by a trust deed entered into by the trustee and the manager of the fund and the use of a management company in this structure is a necessity. It is a contractual arrangement and is not a separate legal entity, with the result that a unit trust does not have power to enter into contracts in its own name. In general, the manager or trustee enters into contracts for the account of a unit trust. The trustee is registered as the legal owner of the assets on behalf of the investors, who receive units, each of which represents a beneficial interest in the assets of the unit trust. As distinct from an investment fund formed as a company, there is no requirement for a QIAIF unit trust to operate on the principle of risk spreading.
10 1 Structuring a Private Equity Fund in Ireland 9 A typical unit trust structure is illustrated below. Unit Trust Unitholders Management Company (Ireland) Trust Deed Trustee (Ireland) Administrator (Ireland) Investment Manager (Any location) Global Sub-Custodian (Any location) Private Equity QIAIFs Whether established as an investment company, ILP or a unit trust, a private equity QIAIF: may provide for carried interest and waterfall mechanisms may have broad and flexible investment policies and, in addition to an investment manager, may utilise non-discretionary investment advisers and investment committees is not subject to any borrowing or leverage limits may provide for partly paid shares and capital commitment and drawdown provisions may be open-ended, have limited liquidity or indeed be closed-ended, with an initial closed-ended period of up to 15 years (after which, subject to investor approval, the closed-ended period may be extended) must appoint an investment manager which is a regulated entity approved by the Central Bank to act as an investment manager to Irish collective investment schemes may provide for investment through wholly-owned subsidiaries may include flexible valuation provisions, including the utilisation of Irish Venture Capital Association and European Venture Capital Association rules
11 2 Alternative Investment Fund Managers Directive and other Regulatory Developments Impacting Private Equity Funds
12 2 Alternative Investment Fund Managers Directive Introduction The AIFMD entered into effect across the EU on 22 July 2013 and imposes harmonised conditions and requirements on the structure and operation of the managers of alternative investment funds, including private equity funds. In return, these managers (each an AIFM ), where they are EU managers, are entitled to avail of a passport to market alternative investment funds ( AIF ) domiciled in the EU to professional investors across the EU. The AIFMD regulates AIFM and does not regulate the AIF directly. In the private equity context, it is likely that the general partner of an Irish ILP and the management company of a unit trust will be the AIFM and therefore subject to AIFMD. Where it is decided to structure the fund as an investment company, the investment company may be the AIFMD itself (a self-managed AIF) or an external AIFM may be appointed. Non-EU AIFMs and non-eu private equity funds will not be entitled to the AIFMD passport until 2015 at the earliest (and the availability of such passport will be dependent on a positive opinion from the European Securities and Markets Authority ( ESMA )). 2.2 Are all AIFMs in scope? An AIFM may be subject to AIFMD in one of two ways, either fully (as an authorised AIFM) or partially (as a registered AIFM). An authorised AIFM must comply in full with AIFMD but also enjoys the benefit of the marketing passport. A registered AIFM, on the other hand, only complies with a limited number of the AIFMD requirements, but does not enjoy the benefits of the marketing passport. An AIFM is subject to AIFMD in its entirety (and so must become an authorised AIFM) where it manages either: assets of 100 million or more; or assets of 500 million or more, where there is no leverage and a five year lock-in period for investors. Below those thresholds, an AIFM may be a registered AIFM or may opt-in to full compliance, thereby availing of a passport for their AIF. 2.3 Main provisions of AIFMD AIFMD imposes several conditions and requirements on AIFMs and, indirectly, the private equity AIFs which they manage. The main conditions are summarised below. Depositary Provisions An AIFM must appoint a single depositary in respect of each AIF it manages. This reflects the existing position for Irish funds and indeed many of the depositary requirements are already met by the depositaries appointed by Irish funds at present. The main change in this context concerns the liabilities of the depositaries, who will be liable for loss of financial instruments subject to the custody obligation unless the loss is due to an external event beyond the reasonable control of the depositary, the consequence of which would have been unavoidable despite reasonable efforts. Leverage The AIFM must set a maximum level of leverage for each AIF it manages, which is a new requirement for Irish funds. The AIFM must comply with this maximum at all times and must be able to demonstrate to the Central Bank that the levels set are reasonable. Minimum Capital Requirements An AIFM which is internally managed must have an initial capital of at least 300,000 and AIFMs which are external to the AIF they manage are required to have at least 125,000 in capital, increasing on a sliding scale to a maximum of 10 million according to the total value of assets under management. AIFMs must also have additional own funds which are appropriate to cover potential liability risks arising from professional negligence or hold professional indemnity insurance against liability arising from professional negligence. Valuation The AIFM itself or an external valuation agent appointed by it must calculate the value of the AIF s assets. The valuation process must be functionally independent from the portfolio management and measures must be put in place to mitigate conflicts of interest. In addition, where an external valuer is appointed (and in this context, the investment adviser or investment manager would be considered an external valuer), the AIFM must be able to demonstrate that the delegation is to an external valuer that is professionally recognised, can furnish professional guarantees and has been appointed pursuant to the AIFMD delegation provisions. Delegation The majority of AIFMs will delegate certain functions, including, in particular, portfolio management. The AIFM must be able to objectively justify the entire delegation structure to the Central Bank and will have to review the services provided by each delegate on an ongoing basis. It may only delegate its portfolio and / or risk management functions to regulated entities; where this condition cannot be satisfied, delegation is subject to the prior authorisation of the Central Bank. The AIFMD provides that an AIFM may not delegate to the extent that it is no longer regarded as the manager of the AIF and is merely a letter box entity. The conditions under which an AIFM may delegate its functions and the criteria for determining whether an AIFM ought to be deemed a letter-box entity are elaborated upon in the underlying level 2 regulations.
13 2 Alternative Investment Fund Managers Directive 12 Remuneration Policies and Practice AIFMD introduces requirements for the AIFM to have remuneration policies and practices that are consistent with and promote sound and effective risk management and do not encourage excessive risk taking. AIFMD establishes a set of rules (largely based on those contained in amendments to the Capital Requirements Directive) with which AIFMs have to comply when applying the remuneration policies for certain categories of staff. Recent clarifications from ESMA indicate that these policies must also be applied to certain staff of delegates (which would include, for example, the investment adviser or manager). It is not yet clear how these requirements would apply in that context. 2.4 AIFMD provisions of particular relevance in the private equity context AIFMD sets out additional measures in respect of AIFM managing private equity funds and these are summarised below. These measures will not apply in relation to the acquisition of companies having their registered office outside of the EU. Asset stripping restrictions Where an AIF acquires control of an EU company, certain asset stripping restrictions apply. Control is defined as 50% of the voting rights of a non-listed company and, in the context of listed companies, is defined by reference to the EU s Takeover Bids Directive (in which case the level is typically 30%). The basic restriction is that in the first two years after the AIF acquires control, the AIFM must use its best efforts to prevent the controlled company effecting distributions, capital reductions, share redemptions and/or the acquisition of own shares. However, there are a number of exemptions. Firstly, only distributions, capital reductions etc that would reduce the company s net assets by an amount in excess of its distributable profits and reserves are covered. Secondly, the restriction does not apply to any small or medium sized enterprises (ie, SMEs as defined under EU law) or SPVs which hold real estate. This prevents asset stripping in the traditional sense, however, the prohibition does not prevent payments to the AIF by way of a repayment of a loan and so it should still be possible to take money out of a business through the repayment of shareholder debt. Notification of acquisition of significant interests An AIFM acquiring significant or controlling influences in non-listed EU companies must notify the Central Bank when the proportion of voting rights in a non-listed company held by an AIF reaches, exceeds or falls below the thresholds of 10, 20, 30, 50 or 75%. That notification must contain information regarding the voting rights held and the conditions under which control has been reached (including information about the identity of the different shareholders involved and the structures through which voting rights are effectively held). Notification of acquisition of control Where an AIF acquires control of a non-listed EU company, the AIFM is required to provide certain information to the unlisted company, its shareholders and the Central Bank within ten working days of acquiring control. This information includes the information discussed above in the context of acquisition of significant interests, namely information regarding the voting rights held and the conditions under which control has been reached. In its notification to the unlisted company, the AIFM must request the board of directors of that company to inform the employee representatives (or where there are none, the employees) of the acquisition of control and the above mentioned information. The AIFM must use its best efforts to ensure the directors do so.
14 2 Alternative Investment Fund Managers Directive 13 In addition, however, the AIFM must, where an AIF acquires control of an EU company (whether listed or unlisted), provide additional information (again, to the company, its shareholders and the Central Bank), including the identity of the AIFM which manages the AIF(s) that have reached control; the policy for preventing and managing conflicts; and its policy on external and internal communication relating to the company, in particular as regards employees. Furthermore, in the context of unlisted companies, the AIFM must also provide to the company and its shareholders (but not the Central Bank) information regarding its intentions with regard to the future business of the unlisted company and the likely repercussions on employment (including material changes to employment conditions). Where the notification requirements only apply to acquisitions of control over non-listed companies, the Transparency Directive and other legislative provisions will continue to apply to the AIFM (and any other investor in the company) in the context of listed companies. Implications for the content of annual reports Where unlisted companies are controlled by AIFs managed by an AIFM, the AIFM is required to request and use its best efforts to make sure that either: (i) the annual report of the unlisted company includes certain additional information and that the board of the company provides it to employee representatives (or where there are none, the employees); or (ii) the annual report of the AIF contains the additional information. The additional information to be included in annual reports must include: a fair review of the development of the company s business representing the situation at the end of the period covered by the annual report; any important events that have occurred since the end of the financial year; the company s likely future development; and certain information on acquisitions of own shares. 2.5 AIFMD Summary While AIFMD will clearly pose challenges in terms of the requirements to which private equity funds will be subject, it is important to note that AIFMD also presents opportunities for private equity funds in terms of asset raising given the European passport which flows from compliance with AIFMD. In addition, as the demand increases for enhanced transparency and regulated investment products, AIFMD is likely to develop into an international brand or quality mark recognised and sought out by investors.
15 2 Alternative Investment Fund Managers Directive Other Regulatory Developments Impacting on Private Equity Funds EuVECA and EuSEF Regulations The European Venture Capital Fund ( EuVECA ) regulation and the European Social Entrepreneurship Fund ( EuSEF ) regulation (collectively, the Regulations ) which were published in the Official Journal of the EU on 25 April 2013 came into effect on 22 July 2013 to coincide with the deadline for implementation of the AIFMD. The Regulations introduce a new regime for venture capital and social entrepreneurship funds fulfilling certain conditions to use an EU brand of European Venture Capital Fund or EuVECA, or European Social Entrepreneurship Fund or EuSEF. Significantly, AIFMs who are below the AIFMD thresholds, can market funds with EuVECA or EuSEF status pursuant to an EU-wide passport, without opting into full compliance with the AIFMD. Data from the European Commission shows that 98% of European venture capital fund managers have a portfolio of funds with assets under management below 500 million, while the average social entrepreneurship fund has assets under management below 20 million. The EuVECA and EuSEF Regulations provide a uniform set of rules for the operation of venture capital funds and social entrepreneurship funds across Europe in return for which the managers of such funds may avail of an EU marketing passport similar to that provided for in the UCITS and AIFMD legislation, with less burdensome requirements than apply under UCITS and AIFMD legislation. The Regulations apply to sub-threshold AIFMs that meet all of the following conditions: they are established in the EU; they are subject to registration in their home member state in accordance with the AIFMD; and they manage portfolios of qualifying investments as defined in the Regulations. Qualifying EuVECA or EuSEF can be externally or self-managed. The new regimes are voluntary, which means that an AIFM may choose not to avail of the Regulations. The EuVECA Regulation and the EuSEF Regulation provide an alternative for small fund managers managing venture capital and social investment funds who do not intend to opt into the AIFMD but who wish to market using a pan-european marketing passport. Regulation on European Long Term Investment Funds On 26 June 2013, the European Commission published a proposed regulation establishing a new investment fund framework to promote investment in long-term assets and companies including infrastructure, transport and sustainable energy projects. The European Long Term Investment Funds ( ELTIFs ) would be available to all types of investor across Europe. As well as complying with the ELTIF regulation, any ELTIF manager would also have to be authorised under AIFMD and comply in full with the AIFMD requirements to provide adequate protection for its investors. Under the proposed regulation, investors will not be able to redeem until the specified end date of their investment (this could be a date ten years or more after the money is invested). Summary The above regulatory developments, alongside AIFMD, illustrate the increasing regulation to which private equity funds are subject but also offer opportunities to managers of private equity funds to increase the asset-raising capabilities of such funds.
16 3 The Authorisation Process for a Private Equity QIAIF
17 3 The authorisation process for a private equity QIAIF 16 There are a number of steps and requirements to establish and bring the Qualifying Investor AIF ( QIAIF ) product to market and a summary of these steps is set out below. 3.1 Speed to market - authorisation in a day A QIAIF is capable of being authorised within 24 hours of a single filing of documentation with the Central Bank. QIAIFs will be authorised by the Central Bank on receipt of a complete filing application provided that a confirmation is received in relation to the contents of the relevant documentation; and the parties involved (ie, the AIFM, directors and service providers) have been approved in advance of the application and meet the necessary authorisation criteria. Under the QIAIF fast-track procedure, the Central Bank does not engage in a detailed prior review of any of the key fund documents. Instead of undertaking a detailed review, the Central Bank relies on confirmations provided by the directors / manager and legal advisers of the QIAIF to ensure compliance with applicable Irish regulations. Compliance by the key fund documents is also demonstrated by the completion of application forms that must be submitted with each new fund application. 3.2 Approval of AIFM As noted herein, a private equity fund established as a QIAIF will, pursuant to the AIFMD, be required to appoint an external AIFM or, in the case of a private equity fund established as an investment company, such fund may be a self-managed AIF. The AIFM will need to be approved by the Central Bank in advance of the QIAIF application for authorisation. The shareholders, directors and managers of the AIFM must satisfy the Central Bank requirements on fitness and probity and possess sufficient experience in relation to the management of AIFs. In addition, the group structure of the AIFM must not prevent effective supervision by the Central Bank. An application for authorisation as an AIFM must be made by submitting: (a) a completed application form signed by two directors of the applicant AIFM; (b) in the case of externally managed AIFMs, completed individual questionnaires in respect of: each director and senior manager; and each individual who has a direct or indirect holding of shares or other interest in the proposed AIFM, which represents 10% or more of the capital or voting rights in the AIFM, and any other individual who is in a position to exercise a significant influence over the management of the AIFM; (c) a programme of activity setting out the organisational structure of the AIFM, including information on how the AIFM intends to comply with its obligations under AIFMD; (d) information on the remuneration policies and practices of the AIFM; (e) information on arrangements made for the delegation and sub-delegation to third parties; and (g) a statement of responsibility.
18 3 The authorisation process for a private equity QIAIF General information required for QIAIFs Availing of the fast-track process referred to above, an application for authorisation of a QIAIF must include the prospectus, a statement of the general nature of the investment objectives of the QIAIF and the identity of the proposed AIFM and its details and also the identity of any proposed management company or general partner (where these entities are not the AIFM). In addition, the identity of the depositary, the investment manager and any third party which will be contracted by the QIAIF, or management company acting for the QIAIF, is required, and copies of the relevant material contracts must also be included in the application. Where the QIAIF is being established as an investment company, applications must contain the memorandum and articles of association, the names of the directors and the company secretary and a copy of the agreement between the company and the depositary. Where the QIAIF is being established as an investment limited partnership, applications require the partnership agreement, the address of the registered office, the principal place of business of the investment limited partnership and the term, if any, for which the investment limited partnership is entered into or, if for unlimited duration, a statement to that effect and the date of its commencement. In addition, the application requires details of the person or persons proposed under the partnership agreement as general partner and a statement signed by the proposed general partner in accordance with section 8(4) of the Investment Limited Partnership Act Where the QIAIF is being established as a unit trust, applications must contain the trust deed between the management company and the depositary. 3.4 Fund directors Proposed directors of the investment company, the general partner or the management company must also be approved in advance. Irish funds must have at least two Irish resident directors. Directors, whether previously approved or not, are required to complete an individual questionnaire ( IQ ) online on a Central Bank website dedicated to each structure. Each time a director is to be appointed, the IQ on the website dedicated to the appointing structure must be completed by the new director, regardless of whether or not the director has previously completed an IQ or not. The Central Bank does not prescribe the experience and expertise required of each director, however, the fitness and probity standards require that a director must: be competent and capable; act honestly, ethically and with integrity; and be financially sound. Depending on the response from the directors referees and any regulating bodies, the Central Bank usually takes 5 business days to approve a fund director.
19 4 Taxation of Irish Domiciled Private Equity Funds
20 4 Taxation of Irish domiciled private equity funds Taxation of Private Equity Funds The tax treatment of Irish regulated private equity funds depends on whether the fund is established as either an investment company or a unit trust, on the one hand, or an investment limited partnership, on the other. However, regardless of the type of fund established, Irish funds are exempt from Irish tax on income and gains derived from their investment portfolios and are not subject to any Irish tax on their net asset value. 4.2 Taxation of Investment Companies and Unit Trusts Taxation of Fund Investment companies and unit trusts are exempt from Irish tax on income and gains derived from their investment portfolios and are not subject to tax on their net asset value Taxation of Investors Investors who are not Irish tax resident may receive distributions without the deduction of any Irish withholding tax. Similarly, non-irish investors may redeem or transfer units in Irish private equity funds without the imposition of any Irish tax. Declarations are normally obtained from investors confirming their non-irish status. These declarations can be incorporated in the fund s standard subscription form. However, where funds are not marketed to Irish investors and certain measures are put in place, investor declarations are not required. Irish withholding tax is generally deducted from distributions to Irish tax resident investors and on disposals and redemptions of units by Irish tax resident investors. The rate of withholding tax is currently 25%, 33% or 36% (depending on the type of payment). However, exemptions from this withholding tax are available for certain categories of Irish investors, such as pension funds, life assurance companies and other Irish domiciled funds Treaty Access From an Irish perspective, Irish domiciled funds established as investment companies or unit trusts are generally entitled to the benefits of Ireland s extensive and expanding tax treaty network. Such funds may obtain certificates of Irish tax residence from the Irish tax authorities. However, the availability of treaty benefits in any particular case will ultimately depend on the relevant tax treaty and the approach of the tax authorities in the treaty country. 4.3 Taxation of Investment Limited Partnerships Taxation of Fund and Investors Investment limited partnerships are not subject to Irish tax on income or gains derived from their investments or on their net asset value. Furthermore, there is no withholding tax on distributions from Irish investment limited partnerships. For Irish tax purposes, an investment limited partnership is tax transparent. This means that the income and gains accruing to it are treated as accruing to its unitholders in proportion to the value of the units beneficially owned by them as if such income and gains did not pass through the hands of the investment limited partnership. Due to their tax transparent nature, investment limited partnerships are not required to obtain declarations from non-irish tax resident investors Treaty Access Because investment limited partnerships are tax transparent under Irish law, they do not benefit from the Irish tax treaty network. As a result, the relevant tax treaty is likely to be between the source country (where the investment is located) and the unitholder s country. 4.4 VAT and Transfer Taxes The provision of management and administration services to Irish funds is exempt from Irish VAT. However, other services (such as custody, legal and accounting services) can result in an Irish VAT liability for Irish funds, which may not always be recoverable. No Irish transfer taxes apply to the transfer, exchange or redemption of units in Irish domiciled funds. No capital duty is payable on the issue of fund units.
21 5 Advantages of Ireland as a Funds Domicile
22 5 Advantages of Ireland as a funds domicile 21 The advantages of Ireland as a private equity fund domicile include the following: Ireland is a Member State of the EU and benefits from the harmonisation of EU financial services regulation and the ability to passport services across the EU Ireland is a participating member of the European Monetary Union Irish collective investment schemes are exempt from domestic corporation tax and have access to Ireland s extensive and expanding network of double tax treaties Ireland has approved a range of tax-exempt fund vehicles which can be tailored to suit investor requirements and preferences Ireland is an OECD Member State and featured on each version of the white-list of countries published by the OECD setting out countries which have substantially implemented internationally agreed tax standards. When the OECD initially published its lists in April 2009, other established fund jurisdictions such as the Cayman Islands and Luxembourg appeared on the grey list of countries (which have agreed international standards but not implemented them) and have only since July 2009 been accorded white-list status Unlike competitor states such as Luxembourg and the Cayman Islands, Ireland was not included on the black-list of tax havens in the proposed Stop Tax Haven Abuse Act published in the United States earlier this year As Ireland is a member of the EU, Irish funds which have AIFMD compliant AIFMs will not be subject to the restrictions on marketing imposed by AIFMD on non-eu funds Ireland has introduced the exchange of information provisions of the EU Savings Directive and therefore is exempt from the withholding tax rates of 20%, rising eventually to 35%, which apply to funds in other member states, including Luxembourg, Austria and Belgium which have not adopted these provisions Ireland does not have any domestic legislation which requires the publication in local newspapers or similar publications of all notices to investors. Publication requirements in other jurisdictions can cost as much as 6,000 on each occasion that it is required and, as many host jurisdictions in Europe require a fund to follow the same publication requirements as they are subject to in their home jurisdiction, this cost can be multiplied many times over in jurisdictions which impose such publication requirements The Central Bank has demonstrated prudent but practical regulation of investment funds, fund managers, administrators and custodians with regulatory sensitivity to the needs of international fund managers and service providers Well developed and experienced professional services infrastructure with specialist legal, tax and accounting skills. The Irish Stock Exchange is an internationally recognised, regulated exchange for the listing of Irish and non-irish domiciled investment funds and it is widely regarded as one of the leading exchanges in the world for the listing of investment funds As Ireland is in the same time zone as London, business can be conducted with Asia and the Pacific in the morning and the Americas in the afternoon Ireland has signed bilateral Memoranda of Understanding with 19 jurisdictions, including China, Dubai, Hong Kong, Isle of Man, Jersey, South Africa, Switzerland, Taiwan, UAE and the US Ireland has an extensive and growing network of double taxation treaties with over sixty countries, providing access to favourable tax reclaim rates. The Irish/US double taxation treaty, in particular, works very well for Irish regulated funds which are investment companies or unit trusts with structural advantages over other jurisdictions Ireland is ranked: 1st in the world for corporate taxes (2010 IMC World Competitiveness Yearbook) 1st in the Eurozone for best countries for business (Forbes 2010) 1st in world for most highly-employable graduates (European Commission study of International Recruiters 2010) Industry competitiveness has increased further in the period since 2008, with business costs, including labour, energy and services all falling and Irish unit wage costs improving by 13% as compared to the EU average and compared to a 10% increase in Luxembourg against the EU average
23 6 Contacts
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