Originally appeared in Financier Worldwide Magazine, August 2011
Private equity firms may need to use a wide variety of legal structures and domiciles to conduct their operations efficiently. Ireland is well known as a fund domicile, and though it is perhaps better known as a domicile for UCITS funds and hedge funds, it is home to a growing number of private equity funds. It has been home to a funds industry for over 20 years and hosts or services the funds of over 850 international sponsors currently across all asset classes representing close to €2 trillion in assets.
Limited partnerships have been the historic structure of choice for private equity firms and the Irish Investment Limited Partnership Act, 1994 provides for such a structure in a regulated fund context. Unregulated structures are generally housed within the limited partnership structure established under the Limited Partnership Act, 1907. Irish variable capital investment companies provide a flexible corporate solution to fund sponsors and are the most common structure used by private equity fund sponsors in Ireland. Unit trusts and common contractual funds (a tax transparent contractual based fund based on co-ownership of the fund's assets) are also available structures.
There is a growing realisation among fund sponsors that there are very good reasons for considering a regulated European domicile for their funds, the minimisation of portfolio level withholding tax by accessing a country's double taxation treaty network being one such reason. Regulated private equity funds in Ireland are not subject to any taxes on their profits or gains. There are no Irish withholding taxes in respect of a distribution of payments to investors who are not resident or ordinarily resident in Ireland provided that the fund has been provided with an appropriate tax declaration signed by the investor. While Irish private equity funds themselves can generally not access Ireland's double-taxation treaty network, a taxable Irish acquisition vehicle can be used while the vehicle's tax bill is minimised through the use of profit equalisation securities. An additional benefit of this structure is that it should eliminate any chance of a foreign tax exposure for the fund as a result of being deemed resident and/or having a permanent establishment in another jurisdiction (where the investment manager is located) by the very reason that the Irish acquisition vehicle will be deemed to be liable to tax...