Introduction
Over the course of the last 20 years, Ireland has earned a reputation as one of the most attractive jurisdictions in which to establish an investment fund, ranking amongst the most flexible and advantageous international fund domiciles due in no small part to the wide variety of funds (from traditional long only to sophisticated alternatives) which may be established under the Irish legal and regulatory system as well as Ireland's ability to react promptly to the demands of both fund promoters and investors.
The latest development in Ireland's offering is the proposed new re-domiciliation process which will enable funds from other jurisdictions re-domicile to Ireland in an efficient manner.
Ireland's growth in the investment funds arena may be attributed to a number of factors including:
- Regulation: Ireland is a regulated jurisdiction offering both UCITS and non-UCITS products across the whole spectrum from plain vanilla long only products through to UCITS alternatives, hedge funds and FoHFs, real estate and private equity schemes. The Irish Financial Services Regulatory Authority (the "Financial Regulator") has many years of experience in authorising and regulating sophisticated investment strategies and products and has adapted and developed its regulations to keep pace with developments in the funds industry internationally.
- Tax: Ireland has a favourable tax regime for investment funds including (i) exemption from tax on the fund's income and/or gains (ii) no withholding taxes on distributions to non-Irish resident investors and (iii) a wide (and expanding) network of double taxation treaties.
- Legal Environment: Ireland operates under a common law legal system with a variety of suitable fund structures (corporate, trust, CCF and ILPs).
- Service Providers: All of the leading fund custodians and administrators have operations in Ireland staffed by teams with in depth experience across the full range of fund products. This is demonstrated by the fact that approximately 50% of all global hedge funds are administered in Ireland.
- International Status: Ireland is a member of the European Union (EU), the Organisation for Economic Co-Operation and Development (OECD) and the Financial Action Task Force (FATF).
As well as being an attractive jurisdiction for the establishment of new investment funds, Ireland now offers a relatively straightforward process for re-domiciling to Ireland an investment fund established in another jurisdiction.
Reasons For Re-Domiciling An Investment Fund To Ireland
There are many reasons why fund promoters may make the decision to re-domicile their investment fund to Ireland, including the desire to be based in a regulated jurisdiction, the desire to leverage off the availability of experienced and highly professional service providers or simply as a reaction to investor demand.
In the post-Madoff environment, there has been a significant trend for fund promoters to establish their new investment funds in highly regulated and well supervised jurisdictions such as Ireland, instead of those jurisdictions which have traditionally been regarded as being less regulated.
In addition, many hedge funds and other alternative investment vehicles are setting up in an onshore jurisdiction like Ireland because of its strong regulatory environment and greater transparency, factors which address many investors demands. As the leading European jurisdiction for sophisticated funds Ireland "ticks all of the boxes" for asset managers and other fund promoters when choosing a domicile for a sophisticated fund.
Practical Considerations
It has always been possible to re-domicile a non-Irish domiciled investment fund to Ireland. To date, an asset for share swap between the Irish vehicle and the non-Irish vehicle, following which the authorisation of the non-Irish vehicle would be revoked by its home regulator and the entity would then be liquidated.
However, the Irish government has now introduced new draft legislation to allow for a more efficient system for re-domiciling non-Irish domiciled corporate funds into Ireland which new system is expected to be in place by the end of 2009 or early in 2010.
The new system will enable corporate funds established and registered in certain jurisdictions to apply to the Register of Companies in Ireland ("CRO") to continue as a company under the laws of Ireland and to apply to the Financial Regulator to be authorised as a fund in Ireland.
This re-domiciliation regime will enable re-domiciled funds to be authorised in Ireland as either a non-UCITS or UCITS funds provided that they meet the relevant criteria for the chosen fund structure.
The new system will result in a number of benefits. For example, the track record of the existing fund can be maintained, with no portfolio realisation occurring and no asset for share swap or amalgamation will be required. It will therefore be a more efficient system for fund promoters considering re-domiciling their corporate funds in Ireland.
The Process
The re-domiciliation process will require the re-domiciling (or migrating) fund to:
- amend its memorandum and articles of association (or equivalent constitutive document) to ensure that they comply with Irish law and meet the requirements of the Financial Regulator;
- apply to the Financial Regulator for authorisation under the Irish regime, either as a UCITS or a non-UCITS.
Prior to an application being made to have the fund approved under the Irish regime, the entity which is acting as the promoter and the discretionary asset manager of the re-domiciling fund will need to obtain approval of the Financial Regulator to act as a promoter of and as discretionary asset manager to Irish funds.
The process for registering the migrating investment company in the CRO is likely to require filing of certain documentation such as:
- a certified copy of the original certificate of incorporation (or equivalent document) from the original jurisdiction;
- a certified copy of the memorandum and articles of association (or equivalent constitutive document) of the migrating company;
- statutory declarations by any one director stating, amongst other things, that the company is not subject to any petition to be wound-up (or any similar petition) and is solvent; and
- a schedule of any security interests created by the migrating company that are registerable in Ireland under the Irish Companies Acts.
The CRO will not register the migrating company in Ireland until it has received (in addition to the documentation outlined above) notification from the Financial Regulator that it proposes to authorise the migrating investment company to carry on business as an Irish domiciled fund.
As soon as the migrating fund is registered in the CRO, it is obliged to apply to be deregistered in the relevant jurisdiction and it must notify the CRO and the Financial Regulator within 3 days of it being de-registered in that jurisdiction. The Financial Regulator will authorise the migrating company as an Irish domiciled fund once its registration in Ireland is effected.
In Conclusion
This new initiative by the Irish Government is a significant and extremely positive development for both the Irish and international investment fund community demonstrating Ireland's continuing ability to be able to react promptly to the demands of both fund promoters and fund investors in what a changed environment with a greater demand for regulation, particularly regulation around the product providers and fund structures, while at the same time continuing to provide great flexibility in both investment and borrowing/leverage arrangements.
Most likely, redomiciliation will be used by promoters wishing to utilise the UCITS product or the Irish QIF product (the vehicle most used for hedge funds, FoHF and less liquid/highly leveraged products) with the new redomiciliation opportunity making the process more straight forward and, most importantly, avoiding any necessity of having to liquidate a portfolio or engage in asset for share swap arrangements.
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.
