UCITS And Non-UCITS Funds In Ireland

Author:Mr Carl O'Sullivan, Kevin Murphy, Sarah Cunniff and Dara Harrington
Profession:Arthur Cox


There are two broad categories of mutual funds in Ireland. The first category comprises undertakings for collective investment in transferable securities ("UCITS"). These are funds established under the regulations implementing the European Union's ("EU") UCITS Directive and can take one of three forms; unit trusts, investment companies with variable capital and common contractual funds.

The second category of mutual funds in Ireland ("non-UCITS") can take one of four forms; unit trusts established under the Unit Trusts Act, 1990, investment companies with variable capital established under the Companies Act, 1990, common contractual funds established under the Investment Funds, Companies and Miscellaneous Provisions Act, 2005 and investment limited partnerships established under the Investment Limited Partnerships Act, 1994.

The main differences between UCITS and non-UCITS funds relate to the way in which the funds are marketed to investors and the proposed investment policies of the funds. Once a UCITS fund is approved in one EU country, application may be made to have the fund registered for marketing to the public in any other EU country. The UCITS Directive requires that such registration be forthcoming in that country within ten working days of the date of application. It is not necessary to obtain any further authorisation.

In contrast, the marketing of a non-UCITS fund is subject to the relevant domestic law of each country and promoters do not enjoy the automatic right to market a non-UCITS fund to the public across the EU. Given the divergences in the law relating to public offerings in EU member states it may be very difficult, if not impracticable, to register an open-ended non-UCITS fund for retail sale in another EU member state. However, in many countries it is possible to market non-UCITS funds by private placement to institutional investors. It may also be possible to market a closed-ended fund to retail investors in some EU member states provided that its prospectus complies with the requirements of the Prospectus Directive.

Why choose Ireland as a Fund Domicile?

Ireland is a global hub for investment funds:1

over 4700 funds, with net assets of over ¤970 billion, are domiciled in Ireland; over 380 leading asset managers from over 50 countries have chosen Ireland as a domicile for their investment funds; those funds are now distributed to investors in over 70 countries (including EEA member states, the US, Hong Kong, Singapore, Japan, China and GCC countries); Ireland is a leading domicile for the establishment of UCITS funds. UCITS funds with over ¤765 billion in assets account for over 80% of the net assets of Irish domiciled funds; in Europe, Ireland is a leading domicile for money market funds and ETFs. Irish domiciled money market funds hold assets in excess of ¤357 billion and Irish domiciled ETFs represent approximately 32% of the total European ETF market; and Ireland is the largest hedge fund administration centre in the world. Ireland services alternative investment assets representing approximately 43% of global and 63% of European hedge fund assets. See Appendix for further details.

Ireland provides a ready-made infrastructure for investment funds and is:

a "one-stop shop", which is home to over 50 top-tier fund service providers; a Eurozone, EU, OECD and FATF member; and in an optimum timezone, which ensures global service coverage. Ireland has a beneficial tax code:

regulated funds are generally not subject to Irish tax of any kind; no Irish withholding taxes on distributions to, or redemptions of units by, non-Irish investors; no annual subscription tax for funds (unlike Luxembourg with its taxe d'abonnement); the lowest headline corporate tax rate in the OECD; and funds may have access to Ireland's extensive tax treaty network with 60 countries. Ireland has a legal and regulatory environment that is tailor-made for the funds industry:

a common law jurisdiction; a pragmatic regulatory framework, developed in partnership with the funds industry; and strong government commitment to Ireland as a centre of excellence for investment funds. Ireland continues to innovate:

it was at the forefront of implementing UCITS III product changes; there is now a 24 hour approval process for sophisticated qualifying investor fund ("QIF") products; the Central Bank has established a unit dedicated to Shari'ah funds; 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 USA and cooperates with all EU member states through the EU legislative framework; and new legislation has been introduced which provides for the re-domiciliation or migration of funds to Ireland from jurisdictions (such as Cayman, Bermuda and BVI) on a tax efficient basis for the investors in those funds. Fund Structures in Ireland

A fund may be established in Ireland as a single fund or as an umbrella fund comprising one or more sub-funds, each with a different investment objective and policy. A sub-fund may comprise different classes of units. Typically classes of units are issued to allow for different fee arrangements, different subscription amounts or different currencies within the same sub-fund.

There are a number of factors which impact on the choice of fund structure such as the investment policy of the fund and the profile and location of investors. In addition, some structures, such as investment limited partnerships, are only available to non-UCITS funds.

Investment Company

A fund which is structured as a variable capital investment company must be incorporated as a public limited company. One of the distinguishing features of a fund structured as a variable capital company is that it has separate legal personality. The day-to-day management and control of the company is provided by a board of directors, with ultimate control resting with the shareholders. Provided that this day-to-day management and control (i.e. the heart...

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