Gibraltar: Part 3: Comparison Chart, Gibraltar EIF & Luxembourg SIF

Last Updated: 5 November 2012
Article by Joseph Garcia
This article is part of a series: Click Part 2: Gibraltar’s New Fund Regulations for the previous article.

 

EXPERIENCED INVESTOR FUNDS (EIFs) (GIBRALTAR)

SPECIALIZED INVESTMENT FUNDS (SIFs)(LUXEMBOUG)

COMPARISON

MINIMUM INVESTMENT/ QUALIFICATION

Restricted to 'Experienced Investors'. Under the legislation, Experienced Investors are persons or bodies who:

  • have a net worth of €1m aside from their residential property, or investors whose normal business activity includes investment related activity; OR
  • have a current aggregate of €100,000 invested in one or more EIF's; OR
  • invest a minimum of €50,000 in the EIF and have been advised by a professional adviser to do so; OR
  • are professional clients as defined under MiFID (this is a wide professional investor definition); OR
  • where the fund has redomiciled to Gibraltar and special qualifications are obtained from the Regulator for those 'incoming' investors to qualify as experienced.

These requirements are not cumulative so it is sufficient for an investor to invest €100,000 and not have to prove any of the other conditions.

Restricted to 'Well informed' investors. A participant must invest a minimum of €125,000 in the Fund. Institutional and/or professional investors also qualify.

The €125,000 minimum can only be waived if the participant receives a positive assessment from a credit institution, an investment firm or a management company confirming their ability to adequately appraise an investment in the SIF.

Minimum investment can be dispensed with under the EIF regulations where the participant can show that he has a net worth above €1m (or satisfy any of the other criteria). With SIFs the minimum requirement must be met or else positive assessment is required.

Minimum investment as a standalone can be €50,000 in the EIF (subject to the investor being appropriately advised). In SIF €125,000 minimum cannot be adjusted.

€100,00 standard minimum is an aggreagete in Gibrlatar (i.e. can be met by separate subscriptions to different funds/cells). SIF has €125,000 as a standalone per investment.

AUTHORISATION / TIME TO LAUNCH

In Gibraltar, authorisation is a 'notification' procedure, OR a 'prior approval' procedure.

Under notification procedure, the fund is launched and the regulator is informed of the launch within 10 days, confirming that it has met all the requirements. This is a unique procedure and there is no regulatory down time. The legal opinion from a senior Gibraltar counsel is filed with the documents stating that the EIF was set-up in accordance with the applicable financial services legislation.

The fund can also apply for 'preapproval'. That is, at least 10 days before the proposed launch the fund documents are filed with the regulator so that this can be approved.

Until recently, no prior approval was necessary to launch a SIF, however this has now been abolished (Bill of law No. 6318 amending the Luxembourg law of 13th February 2007, passed on 6th March 2012). The new law will require all new SIFs to be approved by the CSSF before they can start trading.

The CSSF must now, prior to launch, approve the constitutive documents of the Fund, the choice of depositary, the identity of the members of the management body of the SIF and the identity of the members of the management body of the SIF. As of yet there are no specific guidelines on how long the authorisation process may take.

Gibraltar offers the opportunity to have the fund launched prior to authorisation from the regulator. This allows managers to clearly define their launch process and timeline without any regulatory uncertainty.

Alternatively, the process of prior approval is also available for absolute clarity and within a defined time framework.

It is clear is that as a result of the change of law, the SIF has lost one of its predominant characteristics; the absence of a prior approval requirement in view of launching the SIF.

There are also technical differences involved in terms of the delegation of functions which are more restrictive within the SIF framework, in particular to natural persons.

DIRECTORS

An EIF must have been at least two approved (by the Financial Services Commission) Gibraltar resident directors appointed to the board of directors.

No domicile requirement but they must be of high repute, have sufficient experience in that type of SIF and obtain authorisation from the regulator, the Commission de Surveillance du Secteur Financier (CSSF) .

In Gibraltar you will appoint 2 authorised and licensed EIF Directors who serve a specific purpose. Other Directors appointed (for example, the client) are not subject to licensing or approval. In Luxembourg all directors would need to be approved and this involves a separate application process.

MINIMUM SIZE

No minimum.

Minimum subscribed capital of €1,250,000 (within 12 months) plus may be increased by grand ducal regulation to €2,500,000.

No minimum in Gibraltar and no timeframe for raising minimum amounts.

OFFERING DOCUMENT

An EIF must issue an offering document that is consistent with industry standards and which will allow an investor to make an informed investment. The offering document must comply with the minimum requirements imposed by the financial services legislation.

The SIF or its management company must submit an issuing document to the CSSF. It must contain all the relevant information required for an investor to make an informed judgment on the proposed investment in the SIF.

Similar requirements. Differences recently introduced in Gibraltar law introduce additional clarity on role of controllers of the fund and certain processes that must be included from an investor perspective standpoint all of which are positive.

ELIGIBLE ASSETS

Unlimited.

Unlimited to an extent but Luxembourg law provides that the collective investment of funds must be made in assets 'in order to spread the investment risks'.

Both very flexible.

DIVERSIFICATION

No requirement.

Required by law to comply with the concept of risk diversification/risk-spreading (Art 4 and CSSF Circular n° 07/309 )

No Gibraltar equivalent. No legal requirement in Gibraltar. In Luxembourg, in principle a SIF may not invest more than 30% of its assets or commitments to subscribe securities of the same type issued by the same issuer. The same restriction applies to short sales (30%). The CSSF may require the SIF to comply with additional investment restrictions, and may on justification grant exemptions.

INITIAL FEE

Initial fee of £2,500 payable to the FSC.

Filing duty of €1,500 for a single SIF and €2,650 for an umbrella structure SIF payable to the CSSF .

Fee for EIFs compared to SIFs is higher but the subsequent annual fees are substantially lower (see below)

ANNUAL FEE

Annual fee of £840 payable to the FSC.

CSSF annual fee of €1,500 for a single SIF and €2,650 for an umbrella structure SIF.

Annual fee in Gibraltar lower for any type of fund and substantially lower in the case of a PCC/umbrella fund.

ON-GOING TAX

None.

Subject to an annual subscription tax at a rate of 0.01%, such tax being determined on the total net assets valued at the end of each calendar quarter.

No Gibraltar equivalent. Additional on-going tax for SIF.

DIVISION OF ASSETS/ MULTIPLE STRATEGIES

An umbrella fund structure can be set up as a protected cell company under the Gibraltar Protected Cell Companies Act 2001.This enables the establishment of one single legal entity with different and completely segregated cells, or sub-funds which are traded as individual investment funds. The assets and liabilities of each cell are "ring-fenced" from those of the other cells. Cells within the umbrella fund can be utilised until the purpose of their creation is achieved at which point the specific cell can be closed and the assets distributed to the cells' investors as appropriate. Under Gibraltar law there is no limit on the number of cells that may be created within a protected cell company.

Protected cell companies do not exist as a concept in law, however, there is an option to create multiple compartments which are contractually segregated each corresponding to a different part of the assets and liabilities of the SIF. Each compartment can have a specific investment policy and creditors and investors have recourse to the assets of the specific compartment only.

In Luxembourg there is no equivalent to the PCC Act, which can be viewed as a considerably more sophisticated piece of legislation. This enshrines the segregation of the Cells in statute, rather than by contract.

CUSTODIAN/ DEPOSITARY

An EIF that is open ended must have a depositary. Its role is to 'keep the assets that are under its control safe and accounted for'. Where an EIF has a depositary, it may be based in Gibraltar or in any other country. If the depositary is licensed outside of the EEA, the FSC would need to confirm that they have no objections.

Assets of a SIF must be held with a Luxembourg custodian bank (registered office in Luxembourg or established in Luxembourg, Art 16). Custodian must be a credit institution.

Gibraltar has a more flexible regime in this respect.

MANAGEMENT

No legal requirement to appoint an investment manager. Fund may be self-managed and no minimum capital requirements for manager, or self managed entity. If an Investment Manager is appointed they can be anywhere in the world provided they are authorised to provide the services they are providing from that country.

The Common Fund (FCP) has no legal personality and must be managed by a 'Management company' which must be situated in Luxembourg (registered office in Luxembourg).

The individuals who effectively conduct the business of a management company must be of good repute and be sufficiently experienced in relation to the specific SIF and the management company must have an initial capital of at least €125,000.

Gibraltar has a more flexible regime in this respect.

ADMINISTRATION

The administration of an EIF can either be performed by an authorised Gibraltar resident collective investment scheme administrator or a foreign administrator in a jurisdiction with a legislative or regulatory regime of equivalent standing to Gibraltar in relation to the administration of funds

Central administration must be situated in Luxembourg, but certain functions (including NAV calculation, preparation of financial statements) may be outsourced to third parties for a more efficient conduct of business.

New changes to the EIF legislation make Gibraltar more flexible, although ultimately, control will always need to be shown to be in the fund domicile. The flexibility to appoint foreign administrators to a Gibraltar Fund provides a series of new opportunities.

REPORTING

An EIF shall have an annual audit of its financial statements performed by a statutory auditor. The audited financial statements are required to be made available to the FSC.

Annual audit reports also required.

Additional financial information in accordance with Circular CSSF 07/310 to be provided on a monthly/yearly basis. This information is used for statistical purposes and for purpose of supervising the SIF's concerned.

Additional reporting requirements in Luxembourg.

AMENDMENTS

All material changes to information provided to FSC, notified within 20 business days of change taking place.

The offer document also must contain information on the manner in which changes likely to have a material effect on participants will be notified to participants.

Any change of documents and any change of director requires CSSF approval.

Similar, but no requirement for approval in Gibraltar. Simple notification.

DIVIDENDS

No dividend withholding tax applies when distributing a dividend to a non-Gibraltar resident.

Dividends to a non-Luxembourg resident are not subject to withholding tax unless the SIF is in the scope of EU Savings Directive. All SIF FCPs (common funds) are potentially in the scope of the Directive as they considered "residual entities" with no legal personality and the Luxembourg law implementing the Directive states that all such entities must be considered as having opted for being treated as a UCITS for the purposes of the Directive, hence falling within its scope. However the withholding tax (at 35% unless adequate exchange of information takes place) will only apply if the SIF FCP invests directly or indirectly more than 15% of its assets in debt claims (including cash).

Similar and in practical terms no withholding tax will be applicable to most SIF's, EIF's.

To read this Review in full, please click here.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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This article is part of a series: Click Part 2: Gibraltar’s New Fund Regulations for the previous article.
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