Investment Funds 2022 - Ireland: Law & Practice Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw Walkers - Walkers Global
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Definitive global law guides offering comparative analysis from top-ranked lawyers Investment Funds 2022 Ireland: Law & Practice Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw Walkers practiceguides.chambers.com
IRELAND
Law and Practice United Kingdom
Contributed by: Republic Dublin
Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox of Ireland
and Jill Shaw
Walkers see p.21
CONTENTS
1. Market Overview p.3
1.1 State of the Market p.3
2. Alternative Investment Funds p.3
2.1 Fund Formation p.3
2.2 Fund Investment p.6
2.3 Regulatory Environment p.7
2.4 Operational Requirements p.10
2.5 Fund Finance p.10
2.6 Tax Regime p.11
3. Retail Funds p.13
3.1 Fund Formation p.13
3.2 Fund Investment p.15
3.3 Regulatory Environment p.15
3.4 Operational Requirements p.18
3.5 Fund Finance p.19
3.6 Tax Regime p.19
4. Legal, Regulatory or Tax Changes p.19
4.1 Recent Developments and Proposals for
Reform p.19
2
IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
1. MARKET OVERVIEW ship structures are generally used for investment
funds with strategies relating to private equity
1.1 State of the Market or debt, real estate, infrastructure or other types
The latest statistics published by the Central of illiquid assets, the ILP is a flexible structure
Bank of Ireland show that the net asset value that can be utilised by asset managers seeking
(NAV) of Irish-domiciled funds exceeded EUR3.7 to establish either open-ended or closed-ended
trillion at the end of the third quarter of 2021, rep- investment funds through a regulated partner-
resenting an annual increase of 23% (EUR699 ship structure. A summary of the amendments
billion) from EUR3 trillion at the end of the third is set out in 4.1 Recent Developments and
quarter of 2020. Since the end of 2020, the NAV Proposals for Reform. It is anticipated that, as
of Irish-domiciled funds grew by almost EUR452 a result of these amendments, Ireland’s limited
billion. partnership regime will become more attractive
to managers of private equity funds and other
The number of Irish-domiciled funds (including less liquid asset classes.
sub-funds) grew from 7,962 at the end of 2020 to
8,314 at the end of the third quarter of 2021. On
an annual basis, the number of Irish-domiciled 2 . A LT E R N AT I V E
funds increased by 493, growing from 7,821 at INVESTMENT FUNDS
the end of the third quarter of 2020.
2.1 Fund Formation
In terms of the number of Irish-domiciled funds
by category, Irish-domiciled alternative invest- 2.1.1 Fund Structures
ment funds (AIFs) (including sub-funds) reached AIFs that are domiciled in Ireland are predomi-
3,262 at the end of the third quarter of 2021, nantly established as regulated funds and are
and the total number of Irish-domiciled under- required to be authorised by the Central Bank.
takings for collective investment in transferable Regulated AIFs in Ireland are sub-divided into
securities (UCITS) (including sub-funds) reached retail investor alternative investment funds
5,052. (RIAIFs) and QIAIFs, with the vast majority of
AIFs that are domiciled in Ireland being estab-
The total number of Irish-domiciled qualifying lished as QIAIFs. As RIAIFs are generally tar-
investor alternative investment funds (QIAIFs) geted at retail investors, this type of fund will be
reached 2,984 at the end of the third quarter of discussed in 3. Retail Funds.
2021, and the total assets held by Irish QIAIFs
reached EUR848 billion. There are five legal structures currently available
when establishing a regulated AIF in Ireland:
The Investment Limited Partnerships (Amend-
ment) Act 2020 took effect in early 2021, amend- • the investment company;
ing the legislation governing Irish investment • the Irish collective asset-management vehicle
limited partnerships (ILPs), Ireland’s regulated (ICAV);
investment funds partnership product. These • the unit trust;
amendments have enhanced the product offer- • the common contractual fund (CCF); and
ing by bringing it more in line with the partner- • the ILP.
ship structures in other fund jurisdictions and
introducing best in class features. While partner-
3
Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
Historically, the investment company was the arrangement constituted by a deed of constitu-
vehicle of choice for investors looking for an Irish tion entered into between a management com-
corporate fund vehicle. However, this changed pany and a depositary. Units in a CCF identify
in 2015 with the introduction of the ICAV as a the proportion of the underlying investments of
bespoke corporate structure that caters specifi- the CCF to which an investor is beneficially enti-
cally for the needs of the funds industry. tled. Through contractual arrangements entered
into with the management company, the inves-
Key advantages of the ICAV versus the invest- tors participate and share in the property of the
ment company include: investment fund as co-owners of the assets of
the fund. As a co-owner, each investor in the
• the ability to elect to dispense with the hold- CCF holds an undivided co-ownership interest
ing of an annual general meeting; as a tenant in common with the other investors.
• the ability to file a “check the box” election to The CCF is a tax-transparent structure, which
be treated as a partnership (or a disregarded means that investors in a CCF are treated as if
entity if a single shareholder) for US federal they directly own a proportionate share of the
income tax purposes; underlying investments of the CCF rather than
• the ability to amend the ICAV’s constitutional shares, units or interests in an entity that itself
document, known as the instrument of incor- owns the underlying investments.
poration, without shareholder approval for
certain types of changes; As set out in 1.1 State of the Market, the leg-
• the ability to prepare separate financial state- islation governing the ILP structure offered in
ments for separate sub-funds of the ICAV; Ireland has recently been amended; please
and see 4.1 Recent Developments and Propos-
• not being required to make the audited finan- als for Reform for details. An ILP can now be
cial statements publicly available. structured as an umbrella fund offering greater
flexibility for those seeking to establish funds in
Investors seeking to use a trust structure for their Ireland. Investors in an ILP hold interests in the
investment fund can establish an AIF in Ireland limited partnership by entering into a partnership
structured as a unit trust. Unlike the investment agreement with the general partner as limited
company and the ICAV, which issue shares to partners.
their investors, unit trusts issue investors units
representing a beneficial interest in the assets An Irish fund can be established as either a
of the trust. As it is a trust arrangement, a unit standalone fund or an umbrella fund compris-
trust is not a separate legal entity, meaning that it ing one or more sub-funds, each with segre-
does not have power to enter into contracts in its gated liability. Each sub-fund will generally have
own name. In practice, the board of directors of a different investment objective and policies,
the fund manager acts on behalf of the unit trust. and may comprise different classes of shares/
units/interests. Typically, classes of shares/units/
While CCFs were initially developed in 2003 interests are issued to allow for different fee
to facilitate the pooling of pension fund assets arrangements, different minimum subscription
in a tax-efficient manner, this structure may amounts, different currencies and/or different
be used by any entity that seeks to avail of a distribution arrangements within the same sub-
tax-transparent structure; however, individuals fund. The legislative regime enables the assets
cannot invest in CCFs. A CCF is a contractual and liabilities of each sub-fund of an umbrella
4IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
investment fund established as an investment folio management responsibilities; this is a rela-
company, ICAV, unit trust, CCF or ILP to be tively common model, particularly for less active
segregated from the assets and liabilities of the and/or less liquid portfolios. In such cases, the
other sub-funds of that umbrella, meaning that AIFM may establish an investment committee
the liabilities of a sub-fund are discharged solely with input from an investment adviser.
from the assets of that sub-fund. A sub-fund of
an umbrella fund is not a separate legal entity, 2.1.2 Common Process for Setting Up
but an umbrella fund may sue and be sued in Investment Funds
respect of a particular sub-fund. If an AIF is structured as an investment company
or an ICAV, it will need to be incorporated or
There are no restrictions on Irish alternative registered with the Irish Companies Registration
funds being structured as either open-ended or Office or the Central Bank, respectively, prior to
closed-ended; however, funds that have the abil- an application being submitted to the Central
ity to implement a redemption settlement period Bank for authorisation of the fund as a QIAIF.
of greater than 90 days are categorised as open-
ended with limited liquidity. With the exception of limited asset classes in
respect of which a pre-submission is required,
Master-feeder structures can be established there is a fast-track authorisation process for
for a variety of reasons, such as to cater for the QIAIFs, which allows a QIAIF to be authorised
different tax reporting requirements of certain by the Central Bank within 24 hours (by close
categories of investors, including US taxable of business on the day after submission of the
persons, non-US investors and US tax-exempt application for authorisation) of filing the requi-
investors. Funds are increasingly being estab- site documentation with the Central Bank. The
lished in Ireland to act as the master fund in prospectus, constitutional document and all
master-feeder structures, which include an Irish material contracts being entered into in respect
feeder fund for European investors alongside of the QIAIF must be submitted to the Central
feeder funds that are domiciled in other jurisdic- Bank as part of the application for authorisation
tions, generally Delaware or the Cayman Islands. of the fund. The Central Bank relies on confirma-
The use of an Irish master fund in the structure tions from the fund’s directors or manager (as
enables the passporting of the Irish master and/ relevant) and its Irish legal counsel that the fund
or Irish feeder fund throughout Europe using the complies with the requirements of the Central
Alternative Investment Fund Managers Directive Bank.
(AIFMD) marketing passport.
Prior to the submission of the application for
The majority of investment managers and invest- authorisation of a QIAIF, it is necessary to ensure
ment advisers appointed to act for Irish funds that all service providers that are required to be
are domiciled in other jurisdictions, as the port- pre-approved by the Central Bank to act for Irish-
folio management activities are often performed domiciled funds have indeed been approved to
outside of Ireland. However, the number of Irish- do so. This is most relevant for discretionary
domiciled investment managers and investment investment managers that have not previously
advisers is on the rise, and such entities are gen- provided such services to Irish-domiciled funds.
erally structured as private companies limited Further details of the clearance process for dis-
by shares. It is also possible for the alternative cretionary investment managers are set out in
investment fund manager (AIFM) to retain port-
5Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
2.3.3 Local Regulatory Requirements for Non- ment company, umbrella ICAVs may publish
local Managers. separate financial statements for each sub-fund.
The timeframe for the establishment and author- The disclosure and reporting requirements set
isation of a QIAIF (not subject to any pre-submis- out in the AIFMD are applicable to Irish AIFs,
sion requirements) generally ranges between six including the disclosure requirements set out in
and 12 weeks, taking into account the various Article 23 and the reporting requirements set out
operational steps that need to be completed, in Articles 3 and 24 (also known as Annex IV
such as the onboarding of service providers and reporting).
the opening of various custody accounts, where
required. In addition, the Central Bank requires monthly
and quarterly returns to be submitted, including
2.1.3 Limited Liability details on the gross and net asset value, investor
Investors are generally only liable for any dealing activity, and fees and expenses accrued
amounts outstanding on partly paid shares or in during the period. Ad hoc regulatory reporting is
a capital call structure for any amounts commit- also required in certain circumstances, such as
ted but not yet called. The losses that an investor the suspension of an investment fund, material
will suffer will be limited to the subscription or breaches of the investment policy, or material
commitment amount. errors in the calculation of the investment fund’s
NAV.
In addition, umbrella funds have segregated
liability between sub-funds, which means that 2.2 Fund Investment
the assets and liabilities of a sub-fund are ring-
fenced and such assets cannot be used to sat- 2.2.1 Types of Investors in Alternative Funds
isfy the liabilities of another sub-fund. Investment in Irish QIAIFs is on the rise, with total
assets increasing by more than EUR131 billion
2.1.4 Disclosure Requirements from the third quarter of 2020 to the third quar-
Irish investment funds are required to provide ter of 2021. Investors in QIAIFs are not confined
investors with a prospectus that discloses key to any particular geographic region, and QIAIFs
information about the investment strategy, the have also proved popular to investors outside
parties involved and the potential risks rel- of Europe, including in the Americas and Asia.
evant to investing in the fund. Certain QIAIFs QIAIFs can be used to invest in a wide range
are also required to provide a key information of asset classes and have proved particularly
document (KID) to investors prior to accepting popular for a variety of hedge fund strategies,
their investment in the fund, in accordance with amongst others.
the requirements of the Packaged Retail and
Insurance-based Products Regulation where As investment in QIAIFs is limited to qualifying
those investors are not classified as professional investors, a wide variety of institutional investors
investors under MiFID. invest in such funds, such as pension schemes
and insurance companies, together with private
Irish investment funds are also required to pub- wealth investment comprising family offices and
lish financial statements and an annual report to high net worth individuals.
investors on the financial state of the entity. In
contrast to the position applicable to an invest-
6IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
2.2.2 Legal Structures Used by Fund Rulebook, there are specific fund type require-
Managers ments for money market QIAIFs, QIAIFs that
Entities seeking authorisation as Irish AIFMs in invest more than 50% of their assets in another
accordance with the AIFMD are typically estab- investment fund, closed-ended QIAIFs and loan
lished as private companies limited by shares. origination QIAIFs.
2.2.3 Restrictions on Investors 2.3.2 Requirements for Non-local Service
Investments in QIAIFs can only be made by Providers
qualifying investors, which are typically institu- Whether alternative funds or retail funds, Irish
tional investors or sophisticated high net worth investment funds must have an Irish-domiciled
individuals. There is a minimum subscription depositary and administrator, which are regu-
amount for a QIAIF of EUR100,000, although lated and supervised by the Central Bank.
exemptions from this amount can be granted to
the fund’s manager or general partner, any entity While Irish investment funds structured as
providing investment management or advisory investment companies and ICAVs may be self-
services to the fund, and a director or employee managed, in practice there has been a move
of any of the above, in certain circumstances. towards funds that are externally managed by
an AIFM, in the case of an AIF. A non-Irish AIFM
2.3 Regulatory Environment based in the EU can manage Irish investment
funds if it has made the requisite application to
2.3.1 Regulatory Regime its home regulator. Non-EU AIFMs can also man-
The AIFMD was transposed in Ireland by the age Irish funds, subject to compliance with cer-
European Union (Alternative Investment Fund tain requirements. However, the AIFMD market-
Managers) Regulations 2013, as amended (the ing passport is not available to non-EU AIFMs,
AIFM Regulations), and is the key piece of legis- and Irish AIFs with non-EU AIFMs may only be
lation governing the regulation of AIFs in Ireland. offered in Europe under the available national
It primarily regulates the AIFM as opposed to the private placement regimes.
AIF directly, and is supplemented in Ireland by
the Central Bank’s AIF Rulebook. The Central A person must be approved by the Central Bank
Bank is the regulatory body responsible for the to act as a director of an Irish regulated entity
initial authorisation and ongoing supervision of or of a general partner of an ILP. The process
all Irish investment funds, whether alternative or involves submitting an individual questionnaire
retail investment funds. to the Central Bank for consideration. Direc-
tors and other individuals performing controlled
QIAIFs are not subject to any investment, bor- functions, such as persons selected to act as
rowing or leverage limits set by the Central Bank, designated persons for an AIFM, are required
except for loan origination QIAIFs. If an invest- to comply with the requirements of the Central
ment fund is established to originate loans, the Bank’s fitness and probity regime. If an invest-
types of activities that such fund can be involved ment fund is self-managed, the Central Bank’s
in are limited, as detailed in 2.4 Operational fund management companies guidance will
Requirements. apply, which includes a broad range of govern-
ance requirements. Where the investment fund
In addition to the general rules applicable to has appointed an AIFM, the requirements of the
QIAIFs contained in Part 1 of Chapter 2 of the AIF Central Bank’s fund management companies
7Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
guidance will apply, other than the section relat- A fast-track application is available to entities
ing to externally managed funds. that are based in the EU and authorised as an
investment firm under MiFID to provide portfo-
Prime brokers may be appointed to provide ser- lio management, and to an externally appoint-
vices directly to an AIF and – provided that their ed AIFM, a UCITS management company or a
services do not constitute discretionary portfolio credit institution under the Capital Requirements
management, which typically they would not – Directive that has approval to provide portfolio
are not required to obtain any separate funds- management under MiFID.
related regulatory approval to provide these ser-
vices to an Irish AIF. Irish investment funds are Non-EU-based entities must submit an applica-
required to file any material contracts entered tion to the Central Bank prior to being appointed
into by the fund with the Central Bank. to act as a discretionary investment manager for
Irish investment funds.
2.3.3 Local Regulatory Requirements for Non-
local Managers An entity cleared to act as an investment man-
The approval process for a discretionary invest- ager to Irish investment funds is required to
ment manager depends on the country of estab- notify the Central Bank in advance of a change
lishment of the entity. An Irish investment fund of name, registered address or regulatory status.
may typically only delegate investment man-
agement services to an entity that is authorised 2.3.4 Regulatory Approval Process
or registered for the purpose of asset manage- With the exception of limited asset classes that
ment and subject to prudential supervision in require a pre-submission, a fast-track authori-
its home jurisdiction. In addition, there must be sation process applies to QIAIFs, whereby new
supervisory co-operation between the Central investment funds can be authorised by the Cen-
Bank and the supervisory authority in the enti- tral Bank within 24 hours of the application for
ty’s home jurisdiction, which generally takes the authorisation of the fund being submitted. This
form of a memorandum of understanding or a process also applies to the approval of new
co-operation agreement between the jurisdic- sub-funds of existing umbrella funds and to
tions. The Central Bank has accepted the fol- amendments to the investment fund’s documen-
lowing jurisdictions as having a comparable tation post-authorisation. From an operational
regulatory regime to Ireland: Abu Dhabi, Aus- perspective, it generally takes between six and
tralia, the Bahamas, Bermuda, Brazil, Canada, 12 weeks for the establishment and authorisa-
Dubai, Guernsey, Hong Kong, India, Japan, Jer- tion of a new QIAIF umbrella (not subject to any
sey, Malaysia, Qatar, Singapore, South Africa, pre-submission requirements). Sub-funds of an
South Korea, Switzerland and the United States. existing umbrella structure can be established
In light of Brexit, the Central Bank has confirmed more quickly, depending on the circumstances.
that UK-based entities can no longer avail of the
fast-track application process. UK-based enti- 2.3.5 Rules Concerning Marketing of
ties already approved to act as discretionary Alternative Funds
investment managers for Irish investment funds The marketing rules contained in the AIFMD
may continue to act as such, but a notification of apply to entities seeking to market AIFs in Ire-
change in regulatory status needs to be submit- land. The AIF Rulebook and other Central Bank
ted to the Central Bank in such circumstances. guidance provide additional information on the
marketing of AIFs to investors in Ireland. Fur-
8IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
ther requirements have been introduced by the AIFMs also need to be submitted to the Cen-
framework for the cross-border distribution tral Bank in accordance with Regulation 31A of
of investment funds (consisting of the Cross- the AIFM Regulations. Pre-marketing provides
Border Distribution Regulation (Regulation (EU) the ability to test market interest in a strategy or
2019/1156) and the Cross-Border Distribution product before establishing a QIAIF or obtaining
Directive (Directive (EU) 2019/1160), transposed a marketing passport for a QIAIF.
into Irish law on 6 August 2021), including in rela-
tion to pre-marketing to AIFs, marketing com- Marketing retail AIFs to retail investors in Ire-
munications and local facilities arrangements. land is permitted in limited circumstances, but
The transposing legislation did not introduce an application must be submitted to the Central
any additional “gold-plating” measures. The firm Bank before any marketing takes place.
carrying out the marketing activity will also need
to consider whether it is performing any other The Cross-Border Distribution Regulation
regulatory activities that may need to be licensed provides that all marketing communications
under MiFID – eg, the provision of investment addressed to investors should be identifiable
advice. as such and describe the risks and rewards
of purchasing units or shares of an AIF in an
2.3.6 Marketing of Alternative Funds equally prominent manner. It also states that all
In accordance with the AIFMD, authorised EU information included in marketing communica-
AIFMs are permitted to market Irish AIFs to tions needs to be fair, clear and not misleading.
professional investors in EU Member States ESMA has prepared and published guidelines on
using the AIFMD marketing passport, but there marketing communication requirements, which
are currently no passporting rights available to apply from 2 February 2022.
non-EU AIFMs. However, marketing by non-EU
AIFMs and registered EU AIFMs of Irish AIFs 2.3.7 Investor Protection Rules
may be carried out under the national private Only qualifying investors can subscribe for
placement regimes in EU Member States, where shares, units or interests in a QIAIF – see 2.2.3
those are available. Restrictions on Investors.
Applications from AIFMs to market QIAIFs in Any further restrictions on the types of investors
Ireland are submitted to the Central Bank. The that a QIAIF may be marketed to will be set out
type of application to be submitted depends on in the fund’s prospectus.
the category of AIFM and the category of the
AIF in question. An Irish AIFM seeking to mar- Please see 2.1.4 Disclosure Requirements for
ket an AIF authorised in the EU should submit a summary of the regulatory reporting require-
an application in accordance with Regulation 32 ments applicable to QIAIFs.
of the AIFM Regulations. An Irish AIFM or an
AIFM authorised in another EU Member State 2.3.8 Approach of the Regulator
seeking to market a non-EU AIF should submit The fast-track process for applications for the
an application in accordance with Regulation 37 authorisation of QIAIFs, approvals of new sub-
of the AIFM Regulations. A non-EU AIFM seek- funds for existing umbrella QIAIFs and post-
ing to market AIFs should submit an application authorisation amendments for QIAIFs means
in accordance with Regulation 43 of the AIFM that such applications are processed within 24
Regulations. Pre-marketing notifications by Irish hours of receipt, with the exception of submis-
9Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
sions relating to limited asset classes, in respect redemption rights exercisable for at least five
of which a pre-submission is required. years from the date of initial investment and that
generally do not invest in financial instruments
The Central Bank is generally available to answer that can be held in custody). Any entity acting as
specific queries relating to the authorisation a depositary or DAoFI to Irish investment funds
and ongoing supervision of AIFs. Such queries is required to be authorised by the Central Bank
generally need to be submitted in writing to the to provide such services. There are also rules
Central Bank for consideration, and the time- relating to the holding of investors’ money in col-
frame within which the Central Bank will respond lection accounts and umbrella cash accounts.
depends on the nature of the query received.
The Central Bank will typically not address tech- Details of how an investment fund’s assets are
nical or complex queries on a “no names” basis. valued need to be set out in the investment
fund’s constitutional document, and should
Face-to-face meetings are not typically required comply with the valuation rules set out in the AIF
for the authorisation of AIFs, but are generally Rulebook. Unless an external valuer is appoint-
set up to discuss the proposed establishment ed, the AIFM will retain responsibility for valuing
and authorisation of an AIFM. the fund’s assets. The administrator will assist
in calculating the NAV of the fund but will not
2.4 Operational Requirements have any discretion in relation to how assets are
AIFs being established as money market funds valued, and will adhere to the valuation policy
are subject to the requirements of the European adopted by the AIFM in respect of the fund.
Money Market Funds Regulation (Regulation
(EU) 2017/1131), which limits the types of assets Details of the potential risks relevant to the
in which such funds may invest. investment fund are required to be disclosed in
the fund’s prospectus.
The AIF Rulebook limits the activities of a loan
originating QIAIF to issuing loans, participating Rules relating to insider trading, market abuse
in loans, investment in debt and credit instru- and transparency are generally only applicable
ments, participations in lending and to opera- to Irish listed investment funds.
tions relating thereto, including investing in
equity securities of entities or groups to which As Irish regulated entities, Irish investment
the loan originating QIAIF lends or instruments funds (whether AIFs or UCITS) are subject to
that are held for treasury, cash management or anti-money laundering and counter terrorism
hedging purposes. financing (AML/CFT) legislation. As they gener-
ally delegate transfer agency activities including
Irish investment funds established as a QIAIF or investor services to an administrator, Irish invest-
a RIAIF are required to appoint an Irish-based ment funds need to be aware of the administra-
depositary that is responsible for the safekeep- tor’s policy in relation to AML/CFT, in addition to
ing of the fund’s assets, and are subject to the having their own policy in place.
full AIFMD depositary regime. However, an Irish-
based depositary of assets other than financial 2.5 Fund Finance
instruments (DAoFI) (also known as a real asset There are generally no restrictions on AIFs enter-
depositary) may be appointed to act for a spe- ing into financing arrangements to fund the pur-
cific type of QIAIF (those funds that have no chase of investments or for liquidity manage-
10IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
ment purposes. In accordance with the AIFMD, Central Bank, depending on the structure of the
QIAIFs are required to disclose their maximum investment fund.
level of leverage using both the gross method
and the commitment approach. 2.6 Tax Regime
Irish investment funds structured as authorised
Loan origination QIAIFs are restricted in terms investment companies, ICAVs and authorised
of the amount that can be borrowed, as such unit trusts (both AIFs and retail funds) are subject
funds must not have gross assets of more than to the Investment Undertaking Tax (IUT) regime
200% of their NAV. and are exempt from Irish tax on their income
and gains, assuming that they do not invest in
Lenders will typically take security as part of Irish real estate – see below with respect to the
financing arrangements with QIAIFs, with the Irish real estate fund (IREF) regime. In addition,
types taken depending on the purpose of the there is no stamp duty payable on transfers of
financing and the fund structure. For example, if shares or units of an Irish investment fund (other
financing is being obtained to fund investment, than of an IREF in certain circumstances), and no
it is common for security to be granted over the subscription tax payable in respect of the issue
assets of the investment fund, including any of shares or units of an Irish investment fund.
cash accounts held by the depositary on behalf
of the fund. If the fund has a capital call struc- Provided that they provide a declaration of non-
ture, it is common for security to be granted over Irish residence to the fund, Irish tax is not pay-
the capital commitment account(s) into which able on distributions or redemption payments
commitments are drawn, as well as over any to non-Irish resident investors in Irish funds.
uncalled commitments. Lenders would typically Distributions or redemption payments to certain
also have the right to call uncalled capital com- classes of exempt Irish resident investors (eg,
mitments. pension funds, charities and other Irish regu-
lated funds) may also be paid by the fund free
QIAIFs are not permitted to act as a guarantor from Irish tax, provided a relevant declaration is
for third parties; this includes a sub-fund acting in place.
as guarantor for another sub-fund in the same
umbrella. This restriction can create challenges Under the IUT regime, where an investor is resi-
in relation to the use of financing structures that dent (or ordinarily resident) in Ireland for Irish tax
require cross-collateralisation between borrow- purposes and is not an “exempt Irish investor”,
ing entities falling within the same borrowing an Irish investment fund must deduct Irish tax
group. Depending on the structure, a cascad- on certain “chargeable events” (eg, distributions,
ing pledge mechanism can be used to over- redemptions and transfers) and on a “deemed
come challenges associated with this regulatory disposal”, which takes place eight years from
restriction. The prohibition on acting as a guar- the date of each acquisition of shares or units
antor for third parties does not apply to wholly in an Irish fund, and each subsequent period of
owned subsidiaries of the QIAIF. eight years thereafter. Simplification measures
to dispense with the IUT withholding obligation
It is necessary to register a security interest for the fund on a deemed disposal are available
with the relevant authority, which will be either where the value of shares or units held by non-
the Irish Companies Registration Office or the exempt Irish investors is less than 10% of the
value of the total shares or units in the fund. Such
11Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
investors must instead pay tax on the deemed IREF Regime
disposal on a self-assessment basis. Irish tax at A further specific tax regime applies to Irish AIFs
the rate of 41% must be deducted from all distri- structured as ICAVs, investment companies or
butions and redemptions, and in respect of any unit trusts that invest in Irish real estate (IREFs).
gains arising by virtue of a transfer of shares or Introduced in the Finance Act 2016, the IREF
units in the fund held by Irish resident individuals regime applies where 25% or more of the value
who are not otherwise exempt. If the distribution, of the assets of the investment fund (or of a sub-
redemption or proceeds of transfer are paid to fund in the case of an umbrella fund) is made up
a company, the rate of withholding tax is 25%. of Irish real estate assets, or where it would be
reasonable to consider that the main purpose
Irish investment funds structured as CCFs or or one of the main purposes of the fund is to
ILPs are transparent for Irish tax purposes, and acquire IREF assets or carry on an IREF busi-
profits are treated as arising directly to inves- ness (ie, activities involving IREF assets, includ-
tors. Investors in investment funds structured ing dealing in or developing land or a property
as CCFs may be able to claim double tax treaty rental business).
relief at investor level in respect of the underlying
investments of a CCF. Ireland has an extensive Where the IREF rules apply, withholding tax
and growing network of double taxation treaties (termed “IREF withholding tax”) at the rate of
that provide, inter alia, access to favourable tax 20% of the “IREF taxable amount” must be
reclaim rates (comprehensive double taxation deducted from payments made to unitholders
treaties are currently signed with 76 countries, on an “IREF taxable event”, such as a distribu-
of which 73 are in effect). tion or redemption, and on a sale of shares or
units in the IREF. As the regime operates in paral-
Finance Act 2021 introduces ATAD-compliant lel with the IUT regime, broadly, IREF withhold-
reverse hybrid mismatch provisions into Irish ing tax applies in relation to those investors that
law for tax periods commencing on or after 1 are exempt from IUT, such as non-Irish resident
January 2022. The provisions apply in limited investors and certain classes of exempt Irish
circumstances only and may be relevant to Irish investor. However, certain of those investors are
regulated funds that are considered transparent also exempt under the IREF regime. The catego-
for Irish tax purposes, such as a CCF or an ILP. ries of exempt persons are restricted broadly to
See 4.1 Recent Developments and Proposals widely held EEA/EU regulated pension funds, life
for Reform for more detail. assurance companies, other authorised funds
and their EU/EEA equivalents, exempt chari-
Finance Act 2021 also introduces an ATAD- ties, credit unions and companies benefitting
compliant interest limitation rule into Irish law in from the Irish securitisation tax regime in Sec-
respect of companies within the charge to cor- tion 110 of the Taxes Consolidation Act 1997,
poration tax for accounting periods commencing as amended.
on or after 1 January 2022. While Irish regulated
funds that are companies such as authorised An investor in an EU Member State (other than
investment companies and ICAVs may be tech- Ireland) or a country with which Ireland has a
nically within the scope of the provisions, as they double tax treaty may reclaim IREF withholding
are subject to the IUT regime, they should not be tax under the dividends article of the relevant
subject to adjustment under the rule. double tax treaty, and the charge to Irish tax will
be reduced to the treaty rate. However, benefi-
12IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
cial owners of 10% or more of the shares or units Funds – ie, an investment company, ICAV, unit
in an IREF (directly or indirectly) are technically trust, CCF or ILP.
precluded from claiming treaty relief as the Irish
rules treat the payment from the IREF to such Only the investment company, the ICAV, the unit
persons as income from immoveable property trust and the CCF are available to UCITS in Ire-
to which the source country (Ireland) would typi- land; UCITS cannot be structured as ILPs.
cally be given taxing rights under a double tax
treaty. The descriptions of each fund structure in 2.1.1
Fund Structures are also applicable to RIAIFs
The Finance Act 2019 introduced further chang- and UCITS. On a legislative basis, all UCITS
es to the IREF regime, including anti-avoidance are required to operate on the principle of risk
provisions that apply a 20% income tax charge spreading, regardless of what legal structure is
at fund/sub-fund level to combat excessive debt used, as opposed to QIAIFs and RIAIFs, where
and financing cost deductions, and non-IREF only investment companies are required to
business-related expenses that can reduce the spread investment risk. However, in the case of
profits that would otherwise be subject to IREF RIAIFs, compliance with this principle is implied
withholding tax on distributions/redemption through requiring the RIAIF to comply with a
payments. The debt/financing cost restrictions series of investment and concentration limits
comprise both a debt-to-cost threshold and a in the AIF Rulebook, which are similar to those
profit financing cost ratio, with financing costs in contained in UCITS legislation, albeit slightly
excess of the applicable ratios being treated as less restrictive. The AIF Rulebook provides that a
deemed income subject to income tax at 20%. RIAIF may derogate from complying with certain
Financing costs on genuine third-party debt are investment restrictions for a period of six months
excluded from the provisions. following the date of its launch, provided that
it complies with the principle of risk spreading.
Stamp duty
While the transfer of units in an investment While RIAIFs can be structured as either open-
undertaking (such as an authorised ICAV or ended, open-ended with limited liquidity or
investment company), a CCF or an ILP is closed-ended, UCITS are open-ended struc-
exempt from stamp duty, stamp duty can apply tures where dealing must – at a minimum – be
in respect of the transfer of units in an IREF in offered twice a month at regular intervals. In
certain circumstances. practice, the majority of UCITS are structured
as daily dealing funds.
3 . R E TA I L F U N D S As mentioned in 2.1.1 Fund Structures, the
majority of investment managers and investment
3.1 Fund Formation advisers appointed to act for Irish investment
funds are domiciled in other jurisdictions, but
3.1.1 Fund Structures any such Irish incorporated entities are gener-
There are two types of Irish investment funds ally structured as private companies limited by
available to retail investors: RIAIFs and UCITS. shares.
A RIAIF can be structured as any of the fund
structures detailed in 2. Alternative Investment
13Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
3.1.2 Common Process for Setting Up complete application, and to respond to all sub-
Investment Funds sequent comments within ten business days of
If a RIAIF or UCITS is structured as an invest- receipt. The timeframe for the establishment and
ment company or an ICAV, it will need to be authorisation of a UCITS or a RIAIF generally
incorporated or registered with the Irish Com- ranges between 12 and 24 weeks.
panies Registration Office or the Central Bank,
respectively, prior to an application being sub- The process for establishing and seeking author-
mitted to the Central Bank. isation from the Central Bank for a UCITS or a
RIAIF can be more expensive than the process
Unlike an application for authorisation of a QIAIF, for a QIAIF due to the iterative regulatory review
which can generally avail of the Central Bank’s process to which an application for a UCITS or
fast-track authorisation process (see 2.1.2 a RIAIF is subject.
Common Process for Setting Up Investment
Funds), an application for authorisation of a 3.1.3 Limited Liability
UCITS or a RIAIF is subject to a detailed review As with QIAIFs, investors in RIAIFs are gener-
of the investment fund’s key documentation by ally only liable for any amounts outstanding on
the Central Bank. After its initial review of the partly paid shares or in a capital call structure for
draft documentation, the Central Bank will issue any amounts committed but not yet called. The
comments, which need to be dealt with before losses that an investor will suffer will be limited
the investment fund can be authorised. All other to the subscription or commitment amount.
material contracts entered into by the UCITS or
RIAIF will need to be submitted to the Central Investors in UCITS are generally only liable for
Bank on authorisation day, with corresponding any amounts subscribed for, so that any losses
certifications being made as to their compliance suffered by an investor will be limited to the sub-
with the requirements of the Central Bank. scription amount.
Prior to the application for authorisation of a In addition, umbrella funds have segregated
UCITS or a RIAIF being approved by the Central liability between sub-funds, which means that
Bank, it is necessary to ensure that all service the assets and liabilities of a sub-fund are ring-
providers that are required to be pre-approved fenced and such assets cannot be used to sat-
by the Central Bank to act for Irish-domiciled isfy the liabilities of another sub-fund.
investment funds have indeed been approved
to do so. This is most relevant for discretionary 3.1.4 Disclosure Requirements
investment managers that have not previously As set out in 2.1.4 Disclosure Requirements,
provided such services to Irish domiciled invest- Irish investment funds are required to provide
ment funds. Please see 2.3.3 Local Regulatory investors with a prospectus that discloses key
Requirements for Non-local Managers for fur- information about the investment strategy, the
ther details of the clearance process for discre- parties involved and the potential risks relevant
tionary investment managers. to investing in the investment fund. RIAIFs may
be required to provide a KID to investors prior
For applications for new UCITS or RIAIFs that to accepting their investment in the investment
are not clones of previously authorised funds, fund, in accordance with the requirements of the
the Central Bank aims to respond to initial com- Packaged Retail and Insurance-based Products
ments within 20 business days of receiving a Regulation. Prior to accepting an investment in
14IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
the fund, all UCITS must provide investors with a assets held by Irish UCITS reached EUR2.881
key investor information document (KIID), which trillion, an increase of more than EUR562 billion
is a short form offering document summarising from the end of the third quarter of 2020.
the key features of the UCITS. Although similar
to the KID, there are certain differences between RIAIFs have not been as popular in Ireland, with
the KID and KIID and, under revised legislative either the UCITS or QIAIF being the product of
measures, UCITS will be required to make a KID choice for investors, depending on the invest-
available to investors after the expiry of a transi- ment strategy and target investors. There is no
tional period ending on 31 December 2022. limit on the types of investors that can invest in
RIAIFs, which can target retail, institutional and
Irish investment funds are also required to pub- high net worth investors.
lish financial statements and an annual report
to investors on the financial state of the entity. 3.2.2 Legal Structures Used by Fund
Umbrella ICAVs may publish separate financial Managers
statements for each sub-fund. UCITS management companies are typically
established as private companies limited by
The disclosure and reporting requirements shares, as are AIFMs that manage RIAIFs.
set out in the AIFMD are applicable to RIAIFs,
including the disclosure requirements set out in 3.2.3 Restrictions on Investors
Article 23 and the reporting requirements set out Provided investors comply with on-boarding and
in Articles 3 and 24 (also known as Annex IV anti-money laundering due diligence require-
reporting). ments, there are no regulatory restrictions on the
types of investors that can invest in Irish retail
UCITS are required to make an annual submis- investment funds.
sion of KIIDs to the Central Bank, and to submit
an annual report detailing the types of financial 3.3 Regulatory Environment
derivative instruments invested in by the fund
during the period. 3.3.1 Regulatory Regime
UCITS established in Ireland are authorised
In addition, the Central Bank requires ad hoc reg- under the European Communities (Undertak-
ulatory reporting in certain circumstances, such ings for Collective Investment in Transferable
as the suspension of a fund, material breaches Securities) Regulations 2011 (the UCITS Regu-
of the investment policy, and if there are material lations), which transpose the UCITS Directive
errors in the calculation of the fund’s NAV. (Directive 2009/65/EC). In addition, the Central
Bank (Supervision and Enforcement) Act 2013
3.2 Fund Investment (Section 48(1)) (Undertakings for Collective
Investment in Transferable Securities) Regula-
3.2.1 Types of Investors in Retail Funds tions 2019 (the Central Bank UCITS Regulations)
Investment in Irish UCITS is not limited to retail together with the Central Bank’s Q&As on UCITS
investors: all types of institutional investors and and other guidance provide information on the
high net worth individuals invest in UCITS, which specific requirements relating to UCITS.
are the most popular fund type in Ireland. At the
end of the third quarter of 2021, according to UCITS may invest in transferable securities and
figures published by the Central Bank, the total other liquid financial assets, but there are the fol-
15Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
lowing restrictions in terms of permitted invest- While Irish investment funds structured as
ments: investment companies and ICAVs may be self-
managed, in practice there has been a move
• limits on the types of investments that UCITS towards funds that are managed, in the case of
can invest in; a UCITS by a UCITS management company. A
• diversification limits; non-Irish UCITS management company based
• limits on the use of financial derivative instru- in the EU can manage Irish investment funds
ments; and if it has made the requisite application to its
• limited use of leverage. home regulator. In recent years, there has been
a rise in so-called “Super ManCos”, which are
For example, a UCITS may invest no more than entities seeking authorisation from the Central
10% of its net assets in securities that are not Bank as both an AIFM and a UCITS manage-
listed, traded or dealt in on a regulated market, ment company in order to act for QIAIFs, RIAIFs
and is precluded from investing more than 10% and UCITS.
of its assets in any one issuer, other than in the
case of certain exempted categories of issuers A person must be approved by the Central Bank
where higher limits are applied. Where a UCITS to act as a director of an Irish regulated entity or
invests more than 5% of its assets in any issuer, of a general partner of an ILP, the process for
the maximum amount of any such holdings in which involves submitting an individual ques-
excess of 5% is limited to 40% of the NAV of tionnaire to the Central Bank for consideration.
the investment fund (known as the 5/10/40 rule), Directors and other individuals performing con-
other than in the case of certain exempted cate- trolled functions, such as persons selected to
gories of issuers where higher limits are applied. act as designated persons for a UCITS man-
agement company, are required to comply with
As a type of AIF, RIAIFs are subject to the the requirements of the Central Bank’s fitness
requirements of the AIFM Regulations and the and probity regime. If an investment fund is self-
AIF Rulebook. The regulatory regime applicable managed, the Central Bank’s fund management
to RIAIFs is more restrictive than that for QIAIFs, companies guidance will apply, and the restric-
but less restrictive than the UCITS regime. For tions on the numbers of non-Irish directors and
example, a RIAIF may invest no more than 20% designated persons that can be appointed will
of its assets in securities that are not traded in apply to the investment fund. Where the invest-
or dealt on a regulated market and is precluded ment fund has appointed a UCITS management
from investing more than 20% of its assets in company, such restrictions will apply to the
any one issuer (the UCITS limit for both is 10%). board of directors of the UCITS management
RIAIFs are generally obliged to ensure that they company rather than to the investment fund
are sufficiently diversified. itself.
3.3.2 Requirements for Non-local Service Irish investment funds are required to file any
Providers material contracts they enter into with the Cen-
All Irish investment funds (whether AIFs or tral Bank.
UCITS) must have an Irish-domiciled deposi-
tary and administrator, which are regulated and
supervised by the Central Bank.
16IRELAND Law and Practice
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
3.3.3 Local Regulatory Requirements for Non- 3.3.5 Rules Concerning Marketing of Retail
local Managers Funds
The approval process for a discretionary invest- The marketing rules contained in the UCITS
ment manager of a UCITS or a RIAIF is the same Directive apply to entities seeking to market
as the process for a QIAIF, as set out in 2.3.3 UCITS in Ireland. The Central Bank UCITS Regu-
Local Regulatory Requirements for Non-local lations and other Central Bank guidance provide
Managers. additional information on the marketing of UCITS
to investors in Ireland. As set out in 2.3.5 Rules
3.3.4 Regulatory Approval Process Concerning Marketing of Alternative Funds,
As the Central Bank reviews key fund documen- additional requirements have been introduced
tation as part of the application for authorisa- by the framework for the cross-border distribu-
tion of a UCITS and a RIAIF, the timeframe for tion of investment funds, including in relation
obtaining authorisation depends on the level of to marketing communications and local facili-
comment received from the Central Bank on the ties arrangements. A prior notification period of
documentation submitted. one month for certain changes, including the
marketing of additional share classes, was also
For applications for new UCITS or RIAIFs that introduced in respect of UCITS. In addition, the
are not clones of previously authorised funds, firm carrying out the marketing activity will need
the Central Bank aims to respond to initial com- to consider whether it is performing any other
ments within 20 business days of receiving a regulatory activities that may need to be licensed
complete application, and to respond to all sub- under MiFID – eg, the provision of investment
sequent comments within ten business days of advice.
receipt. This timeframe also applies to applica-
tions for the approval of new sub-funds that are 3.3.6 Marketing of Retail Funds
considered to be complex. Where it is intended A UCITS can generally be sold without any
to invest in contracts for difference (CFDs), col- material restriction to any category or number
lateralised loan obligations (CLOs), contingent of investors in any EU Member State, subject to
convertible securities (CoCos) or binary options the filing of appropriate documentation with the
or such other asset classes as the Central Bank relevant competent authority in the EU Member
may prescribe from time to time, the applica- State(s) where it is intended to market the invest-
tion will be subject to enhanced scrutiny by the ment fund. In order to market a UCITS in Ireland,
Central Bank and additional information may a marketing application must be submitted to the
be sought, including portfolio information. For competent authority in its home Member State
new sub-funds that are clones of previously for onward submission to the Central Bank prior
approved sub-funds or are considered to be to the commencement of marketing in Ireland.
non-complex, the Central Bank aims to respond
to initial comments within ten business days of The Cross-Border Distribution Regulation
receiving a complete application, and to respond provides that all marketing communications
to all subsequent comments within five business addressed to investors should be identifiable
days of receipt. as such and describe the risks and rewards
of purchasing units or shares of a UCITS in an
The establishment and authorisation of a UCITS equally prominent manner. It also states that all
or a RIAIF generally take between 12 and 24 information included in marketing communica-
weeks. tions needs to be fair, clear and not misleading.
17Law and Practice IRELAND
Contributed by: Nicholas Blake-Knox, Jonathan Sheehan, Jennifer Fox and Jill Shaw, Walkers
ESMA has prepared and published guidelines on Face-to-face meetings are not typically required
marketing communication requirements, which in respect of the authorisation of UCITS funds,
apply from 2 February 2022. unless there is something particularly significant
associated with the project, but are more typi-
Although RIAIFs may be marketed to retail inves- cally set up to discuss the establishment and
tors in Ireland, they may only be marketed to pro- authorisation of a UCITS management company.
fessional investors in other EU Member States
using the AIFMD marketing passport. Certain 3.4 Operational Requirements
EU Member States may permit the marketing Retail investment funds in Ireland are limited
of AIFs to retail investors where additional steps not only in terms of the types of assets that can
are complied with, but this differs by jurisdiction be invested in but also in terms of the expo-
on a case-by-case basis. RIAIFs must appoint sure to particular securities and issuers. Focus-
a fully authorised AIFM, and non-EU managers ing specifically on the requirements relating to
or registered AIFMs are prevented from manag- UCITS, such investment funds are permitted
ing RIAIFs. to invest in transferable securities and other
liquid financial assets but are not permitted to
The marketing of retail AIFs not domiciled in Ire- invest directly in real estate or commodities,
land is permitted in limited circumstances, but nor to engage in physical short selling. Invest-
an application must be submitted to the Central ments by UCITS in other open-ended collective
Bank before any marketing takes place. investment schemes that are not established as
UCITS are subject to additional requirements,
3.3.7 Investor Protection Rules including requirements relating to those underly-
There are no Irish regulatory restrictions on the ing funds being subject to equivalent supervision
categories of investors that can invest in UCITS and investor protection measures. Investment in
or RIAIFs. closed-ended funds by UCITS is limited to cir-
cumstances where the underlying closed-ended
Any restrictions on the categories of investors funds meet the definition of a transferable secu-
that a UCITS or RIAIF may be marketed to will rity and fulfil certain corporate governance and
be set out in the fund’s prospectus. regulatory requirements.
Please see 3.1.4 Disclosure Requirements for As detailed in 3.3.1 Regulatory Regime, UCITS
a summary of the regulatory reporting require- are subject to a more stringent regulatory regime
ments applicable to UCITS and RIAIFs. than AIFs in terms of permitted investments and
investment restrictions.
3.3.8 Approach of the Regulator
The Central Bank is generally available to answer Whether established as AIFs or UCITS, Irish
specific queries relating to the authorisation and investment funds are required to appoint an
ongoing supervision of UCITS. Such queries Irish-based depositary that is responsible for
generally need to be submitted in writing to the the safekeeping of the fund’s assets, and that
Central Bank for consideration, and the time- must be authorised by the Central Bank to pro-
frame within which the Central Bank will respond vide such services. There are also rules relating
depends on the nature of the query. The Cen- to the holding of investors’ money in collection
tral Bank is reluctant to deal with substantive or accounts and umbrella cash accounts.
complex queries on a “no names” basis.
18You can also read
