[vc_row row_type=”row” use_row_as_full_screen_section=”no” type=”full_width” angled_section=”no” text_align=”left” background_image_as_pattern=”without_pattern” css_animation=””][vc_column][vc_tabs style=”horizontal”][vc_tab title=”AIFM Directive” tab_id=”1449761980967-4-7″][vc_column_text]The EU directive on alternative investment fund managers (AIFMD) came into force on 21 July 2011.

The Directive requires any fund manager whose regular business is to manage AIFs in the European Union (EU) to be authorised by, or registered with, a competent authority in the EU. This new framework applies to fund managers that have their registered office in the EU with its provisions extending to the management of non-EU AIF by these managers. The Directive also applies to fund managers based outside EU borders which manage and / or market AIFs in the EU.

The concept of ‘management of AIFs’ is comprised of the core activities of portfolio management and risk management, with the AIFM license covering both these activities. If permitted by its legal structure an AIF could be internally managed, and as such the AIF is authorised as the AIFM. Otherwise an external AIFM can be appointed by one or more AIFs.

The AIFM may also perform additional functions in the course of the management of AIFs including administration (legal and accounting services; customer inquiries; valuation, pricing, tax returns; regulatory compliance monitoring; maintenance of unit-/shareholder register; distribution of income; unit/shares issues and redemptions, contract settlements and record keeping), marketing and services specifically related to the assets of an AIF.

 

Exemptions

There are a number of the key exemptions to the scope of the AIFMD. In summary, the AIFMD will not apply to managers of:

  • One or more AIFs whose only investors are companies within the same group as the manager (provided that none of these investors itself is an AIF)
  • “Small” AIFs with aggregate total assets of
  • Less than €100 million, including leverage; or
  • Less than €500 million, provided the AIFs do not employ any leverage and they are closed-ended for 5 years
  • Securitisation special purpose vehicles (SPVs).

For real estate fund managers, it is also worth noting that the only typical real estate ownership structures which are entirely outside the scope of the AIFMD are joint ventures and co-management arrangements for a particular asset where each of the investors co-owns directly the asset under management (as there will be no AIF).

 

EU Passports for management and marketing of AIFs

The AIFM license will confer an EU-wide management passport to AIFM that will permit the management of AIFs based in any EU Member State, either directly or through a branch. The host country competent authorities will not be able to impose any additional requirements on the AIFM in respect of the areas covered by the Directive.

The AIFMD will also confer an EU-wide marketing passport to the AIFM to market AIFs that it manages to professional investors across the EU.

 

Non EU Manager Using the passporting system

If a non-EU Manager wants to take advantage of the passporting system (assuming it becomes available to non-EU fund managers), then full compliance with the AIFMD will be required. This would therefore entail a significant review of existing fund documentation, as well as the non-EU Manager’s own internal arrangements, in order to ensure (amongst other things) that:

  • Appropriate remuneration and management fee policies are in place to enable the non-EU Manager to promote, effective risk management (for example, the use of guaranteed bonuses is restricted)
  • Where the non-EU Manager carries out its own valuations in-house, it is able to ensure independence between the valuation and portfolio management functions (for example, appropriate conflict of interest policies would need to be in place)
  • The risk management function is adequately separated from the portfolio management function
  • The non-EU Manager’s liability for a non-EU AIF is not affected by any delegation or sub-delegation
  • The non-EU Manager holds initial capital of €125,000 and, where the non- EU Manager’s total assets under management exceeds €250 million, the non-EU Manager has its own funds equal to 0.02 per cent of the amount by which the portfolio exceeds €250 million (subject to a cap of €10 million).

 

Authorization requires filing information on the AIFM as well as the AIF it intends to manage to the regulator of the home Member State of the AIFM.

The file on the AIFM needs to incorporate information on the persons conducting the business, the qualifying shareholders, program of activity, organizational structure, remuneration policies and delegation arrangements.

Information on the AIF must cover investment strategy, arrangements for the appointment of the depositary, description of any delegation arrangements at AIFM and depositary levels, valuation procedure and pricing methodology, liquidity risk management, any costs to be borne by the investors, arrangements to ensure fair treatment of investors, identity and arrangements with the prime broker, and information on how periodic information will be disclosed to investors.

 

Definition of AIF 
The AIFM Law adopts a broad approach regarding the meaning of an ‘alternative investment fund’. Only UCITS are explicitly excluded from the definition of an alternative investment fund; any other undertaking for collective investment raising moneys from a number of investors with a view to investing them in accordance with a defined investment policy for their benefit will qualify as an alternative investment fund. It does not matter whether the fund is closed or open-ended, internally or externally managed, listed, or distributed to the public or to a limited number of investors.

At the same time, the following are excluded from the scope of the AIFM Law:

  • Holding companies;
  • Family offices;
  • Sovereign wealth funds;
  • Schemes managed by national, international and supranational public bodies in the public interest;
  • Joint ventures;
  • Insurance contracts;
  • Managed accounts; and
  • Single investor funds.

 

Tax Consideration

Depending on circumstances, there may be inconsistencies in the criteria for determining substance from a regulatory perspective compared to the tax perspective. Hence, an important challenge for AIFMs is to design an efficient operating and management structure for their AIFs that will also satisfy the substance requirements for tax residency.

From a tax point of view, an AIF should generally be tax resident where it is effectively managed. In recent years tax residency has been increasingly challenged by Tax Authorities on the basis of substance. The Tax Authorities may deny the application of tax treaties by trying to demonstrate that a foreign entity is effectively managed in their jurisdiction, and therefore taxable in their jurisdiction. Alternatively the Tax Authorities may not challenge the tax residency of an entity, but may consider that an entity has a taxable presence in the form of a permanent establishment in their jurisdiction, and thus attract a taxation right on a significant part of the profits.

The location of the AIFM is likely to influence the tax residency of the AIF which is determined based on the statutory seat or central administration, the place of effective management and ultimately on the specific facts and circumstances, including where key decisions are made, the board composition, the level and type of activities, office and employees.

The EU Passport for AIFMs may give rise to more complex taxation issues in cross-border situations when an AIFM located in a given jurisdiction manages AIFs in various jurisdictions, with this complexity increasing when AIFM functions are delegated. The question arises as to whether the residence of AIFs is defined by their country of establishment or the place of establishment of the AIFM. The jurisdictional separation of the AIFM and the AIF may lead to double taxation or double tax exemptions at AIF level. Such separation may also lead to withholding taxes on distributions from the AIF to its investors in its country of establishment and/or in the jurisdiction of the AIF. Finally, this separation may alter the ability of the AIF to access double taxation treaties.

 

The ongoing obligations applicable to authorised AIFMs fall under the following key areas:

  • Minimum capital – down to €125.000 for an external AIFM with an additional amount of 0,02% of the value of the portfolio in excess of €250m capped at €10m
  • Remuneration policies – discouraging the inconsistent risk taking
  • Risk management system – must be hierarchically separated from the operating units
  • Maximum leverage – must be set as well as the right to re-use collateral granted under the leveraging agreement
  • Liquidity management, system – to monitor risk and ensure compliance with set obligations
  • Valuation – procedures to ensure proper and independent valuation
  • Independent depositary – single depositary for each AIF
  • Delegation – permitted for some functions as long as the AIFM does not become a ‘letter-box’ entity
  • Reporting obligations – relating to investment strategy and objectives, of the AIF, use of leverage, risks, investment restrictions, contractual business, delegation arrangements, liquidity risk management, valuation procedure, pricing
  • Financial information – annual report within 6 months from YE; additional regulatory reporting requirements of home regulator
  • Investment in listed and non-listed entities/ anti-asset stripping measures – specific disclosure obligations apply when crossing ownership thresholds

[/vc_column_text][/vc_tab][vc_tab title=”Luxembourg AIF” tab_id=”45414208-c457-2″][vc_column_text]Luxembourg is one of the largest and in demand financial centre in Europe.

Below is an executive summary for alternative investment find incorporated in Luxembourg.

 

Setup a Fund Process

 

  • Average time required
    • SIFs – 2-3 months to obtain CSSF approval for the application – 1 week to incorporate the fund (may be performed in parallel in the approval process).
    • SICARs – 2-3 months to obtain CSSF approval for the application – 1 week to incorporate the fund (may be performed in parallel in the approval process).

 

  • Basic documents required
    • Application questionnaire (All legal structures)
    • Prospectus (All legal structures)
    • Risk management process (for SIFs, SICARs and Part II UCIs that are considered as AIF only)
    • Articles of incorporation of the fund (for a corporate fund)
    • Management regulations (for a contractual fund)
    • Custody agreement (All legal structures)
    • Investment management agreement (if applicable)
    • Investment advisory agreement (if applicable)
    • Administration agreement (if applicable)
    • Transfer agency agreement (if applicable)
    • Distribution agreement (if applicable)
    • Paying agency agreement (if applicable)
    • Curriculum Vitae, declaration of honour, extract from the criminal records of the directors
    • Documents to identify and assess the quality of the fund investment manager
    • Business plan (for SICAR only)
    • Letter of intent or engagement letter from the auditor

 

  • Promoter approval and capital requirement
    • There is no promoter approval or for capital requirements
  • Management Company’s capital requirements
    • Minimum capital of €125,000 is required
  • Registration duty
    • No duty applies for registering a fund
  • Notary Fees
    • Approximately €3,000 for a fund organized under a corporate form
  • Regulatory
    • Annual registration fees vary from €3,500 – €10,000
  • Legal fees
    • Varies based on fund complexity and requirements
  • Custodian, administration fees
    • Average administration fee – Between 0.01% and 0.15% of NAV

 

Regulatory Environment

  • Regulatory Body
    • Commission de Surveillance du Secteur Financier (CSSF)

 

  • Fund structures available
    • Investment Company (SICAV)
    • Common Fund (FCP)
  • Exempt fund from regulation
    • No exceptions from regulation
  • Market restrictions
    • Passporting in – Funds which propose to market their units in Luxembourg:
    • Must submit documents required by the Financial Regulator.
    • The notification process is simplified, and is a regulator-to-regulator process.
  • Fund re-domiciliation requirement
    • The requirements of the CSSF in relation to re-domiciling a fund to Luxembourg are:
  • Initialisation of the re-domiciliation process of the management body of the fund (e.g. Board of Directors of the General Partner),
  • Preparation of the re-domiciliation (drafting of the fund documents and liaising with the CSSF)
  • Holding of a general meeting of the shareholders of the fund before a Notary in Luxembourg

 

Taxes

 

  • Taxes applicable at fund level
    • No fund level tax imposed in Luxembourg.
  • Taxes applicable to management company
    • The corporation tax rate imposed range from 10-29.22%.
  • Double taxation treaties
    • 67 Double Tax Treaties signed.

[/vc_column_text][/vc_tab][vc_tab title=”Grand Cayman AIF” tab_id=”5b24bba7-d2d4-5″][vc_column_text]Grand Cayman Island is one of the best options available to set up an offshore investment fund.

Below is an executive summary for alternative investment find incorporated in the Cayman Islands.

 

Setup a Fund Process

 

  • Average time required
    • Registered Funds– Same day registration. Set-up time from establishment of registration is approximately 4-6 weeks depending on complexity and service provider requirements.
    • Administered Funds– Same day registration. Set-up time from establishment of registration is approximately 4-6 weeks depending on complexity and service provider requirements.
    • Licensed Funds – Registration is subject to CIMA approval, which generally takes between 4- 6 weeks. Set-up time from establishment of registration is approximately 8-12 weeks.
  • Basic documents required
    • Offering memorandum
    • Subscription agreement
    • Constitutional documents (e.g. memorandum and articles of association of a company, limited partnership agreement/deed for a partnership and trust deed for a unit trust)
    • Investment management agreement
    • Administration agreement
    • Prime brokerage/custodian agreement
    • Form MF1 for regulated funds, Form MF2 for administering funds or Form MF3 for licensed funds
    • Consent letter from the auditor
    • Consent letter from the administrator
    • Organisational and directors’/general partner’s/ trustee’s resolutions
    • Questionnaire, affidavit of no conviction and personal references for each director (Licensed funds only)
  • Promoter approval and capital requirement
    • There is no promoter approval or for capital requirements
  • Management Company’s capital requirements
    • There are generally no capital requirements for an investment manager of a regulated fund,
      • Except for Investment managers that are entities incorporated or registered in the Cayman Islands who are required to be licensed pursuant to the Securities Investment Business Law of the Cayman Islands, in which case the minimum capital requirement is approximately US$122,000, with certain exemptions from such licensing requirements being available, depending on the nature of the business conducted.
  • Registration duty
    • Initial registration fees: Effective July 31, 2013, US$4,268 for a standalone fund and US$3,049 for a Master Fund.
  • Regulatory
    • Annual registration fees: Effective July 31, 2013 US$4,268 (plus, in respect of a regulated mutual fund, which is a segregated portfolio company, US$305 per segregated portfolio).
  • Legal fees
    • Varies based on fund complexity and requirements
  • Custodian, administration fees
    • Custody and Administration fees are typically charged at normal market rates.

 

Regulatory Environment

  • Regulatory Body
    • Cayman Islands Monetary Authority (CIMA)
  • Fund structures available
    • Any company, trust or partnership incorporated or established in the Cayman Islands, including:
      • Exempted Company. Can also be:
        • Registered as SPC
        • Registered as an LDC
        • Exempted Limited Partnership
  • Exempt fund from regulation
    • Except for Master Funds, an investment fund will be exempt from the requirements to be registered, if the equity interests are held by not more than 15 investors, the majority of whom are capable of appointing or removing the operator (i.e. the directors).
    • In addition, certain other investment funds such as closed ended funds may be exempted as well.
  • Market restrictions
    • A fund that is a Cayman Islands exempted company and is not listed on the Cayman Islands Stock Exchange is prohibited from making any invitation to the public in the Cayman Islands to subscribe for any of its securities.
  • Fund re-domiciliation requirement
    • Generally the same as the requirements for establishing a new fund, except that where a company incorporated in another jurisdiction wishes to expand in the Cayman Islands, the following would be required:
      • The company must be a corporate body, incorporated with limited liability and share capital, and be constituted in a form, which can be incorporated as an exempted company limited by shares under the Companies Law.
      • The laws of the jurisdiction from which the company is transferring must permit, or not prohibit, the transfer of the company in the manner provided in the Companies Law.
      • The transfer must be permitted by, and have been approved in accordance with the company’s charter documents.
      • Certain corporate documents / registers and filings / notices / declarations are required by the Registrar of Companies.
      • An affidavit, signed by a director of the company, must be filed.
      • The company must, within 90 days, adopt a new memorandum and articles of association in accordance with the Companies Law.

 

Taxes

 

  • Taxes applicable at fund level
    • No fund level tax imposed in the Cayman Islands.
  • Taxes applicable to management company
    • No corporation tax imposed on the Cayman Islands.
  • Double taxation treaties
    • 32 Tax Information Exchange Agreements signed.

[/vc_column_text][/vc_tab][vc_tab title=”Ireland AIF” tab_id=”1449761468635-2-9″][vc_column_text]Ireland is one of the largest investment fund centre in Europe which provides access to EU countries.

Below is an executive summary for alternative investment find incorporated in Ireland.

 

Setup a Fund Process

 

  • Average time required
    • For both, Qualifying Investor Fund and Professional Investor Fund, the establishment, including approval of service providers requires 12 weeks
  • Basic documents required
    • Letter of application (All legal structures)
    • Prospectus (All legal structures)
    • Risk management process (All legal structures)
    • Memorandum & articles of association (Investment Company)
    • Trust deed (Unit Trust)
    • Deed of constitution (CCF)
    • Custody agreement (All legal structures except the Unit Trust)
    • Partnership agreement (Investment Limited Partnership)
    • Management agreement (Optional for Investment Company)
    • Investment advisory agreement (All legal structures)
    • Administration agreement (All legal structures)
    • Transfer agency agreement (All legal structures)
    • Distribution agreement (if applicable)
    • Paying agent/facilities agent agreement (if applicable)
    • Prime brokerage agreement (if applicable)
  • Promoter approval and capital requirement
    • For AIFs the AIFM must be approved. / AIFM capital requirements apply for all other funds.
  • Management Company’s capital requirements
    • Minimum capital –€125,000 or 3 months expenditure, whichever is greater.
  • Registration duty
    • No duty applies for registering a fund
  • Regulatory
    • Annual registration fees vary from €2,000 – €4,000
  • Legal fees
    • Varies based on fund complexity and requirements
  • Custodian, administration fees
    • Average administration fee – Between 0.01% and 0.15% of NAV

 

Regulatory Environment

  • Regulatory Body
    • Central Bank of Ireland (CBI)
  • Fund structures available
    • Common Contractual Fund
    • Investment Company
    • Investment Limited Partnership
    • Irish Collective Asset-management Vehicle (ICAV) – legislation is currently being drafted and is expected to be implemented in 2014
  • Exempt fund from regulation
    • Yes, in the case of funds that are restricted to certain exempt investors such as Irish pension funds and charities.
  • Market restrictions
    • AIFs: Passporting in – Funds which propose to market their units in Ireland:
      • Must submit all documents as outlined by the Financial Regulator.
      • Under AIFMD, the notification process is simplified, and is a regulator-to-regulator process
  • Fund re-domiciliation requirement
    • The ability of a foreign incorporated fund to effectively be re-registered as an Irish Corporate is subject to meeting the Financial Regulator’s requirements.
    • The process does not require transfer of ownership of assets to the newly registered fund or cause any tax charge to the fund or underlying investors for doing so.
    • When implemented, the ICAV will further enhance Ireland’s attractiveness as a domicile for the re-domiciliation of offshore collective investment funds

 

Taxes

 

  • Taxes applicable at fund level
    • No fund level tax imposed in Ireland.
  • Taxes applicable to management company
    • The corporation tax rate imposed is 12.5%.
  • Double taxation treaties
    • 68 Double Tax Treaties signed.

[/vc_column_text][/vc_tab][vc_tab title=”Cyprus AIF” tab_id=”1449761470042-3-3″][vc_column_text]Cyprus is one of the largest and in demand financial centre in Europe. Cyprus is relatively new jurisdiction and very promising for the future. Cyprus offers two main categories of AIF’s. The first one with unlimited number of investors and a ‘lighter’ version which restricts the number of investors up to 75 members (AIF-LNP).

Below is an executive summary for alternative investment find incorporated in Cyprus.

 

Setup a Fund Process

 

  • Average time required
    • For all structures up to 2 months
      • Variable capital company
      • Fixed capital company
      • Partnership

 

  • Basic documents required
    • Application questionnaire (All legal structures)
    • Prospectus (All legal structures)
    • Risk management process
    • Articles of incorporation of the fund (for companies)
    • Management regulations
    • Custody agreement (Exception applies to AIF-LNP)
    • Investment management agreement (if applicable)
    • Investment advisory agreement (if applicable)
    • Administration agreement (if applicable)
    • Transfer agency agreement (if applicable)
    • Distribution agreement (if applicable)
    • Paying agency agreement (if applicable)
    • Curriculum Vitae, declaration of honour, extract from the criminal records of the directors
    • Documents to identify and assess the quality of the fund investment manager
    • Letter of intent or engagement letter from the auditor and legal advisor

 

  • Promoter approval and capital requirement
    • For AIFs the AIFM must be approved.
  • Management Company’s capital requirements
    • Minimum capital of €125,000 is required
  • Registration duty
    • For companies one off duty applies to share capital of 0.5%
  • Regulatory
    • Annual registration fees vary from €2.000 – €15,000.
  • Legal fees
    • Varies based on fund complexity and requirements
  • Custodian, administration fees
    • Average administration fee – Between 0.01% and 0.15% of NAV

 

Regulatory Environment

  • Regulatory Body
    • Cyprus Securities and Exchange Commission (CySEC)
  • Fund structures available
    • Either with Unlimited or Limited of number investors
      • Fixed capital company
      • Variable capital company
      • Partnership
  • Exempt fund from regulation
    • No exceptions from regulation
  • Market restrictions
    • Passporting in – Funds which propose to market their units in Cyprus:
    • Must submit documents required by the Financial Regulator.
    • The notification process is simplified, and is a regulator-to-regulator process.
  • Fund re-domiciliation requirement
    • The requirements of the CSSF in relation to re-domiciling a fund to Cyprus are:
  • Initialisation of the re-domiciliation process of the management body of the fund (e.g. Board of Directors of the General Partner),
  • Preparation of the re-domiciliation (drafting of the fund documents and liaising with the CSSF)
  • Holding of a general meeting of the shareholders of the fund before a Notary in Cyprus

 

Taxes

 

  • Taxes applicable at fund level
    • No fund level tax imposed in Cyprus except for 12.5% on interest income only (excludes bond capital amount).
  • Taxes applicable to management company
    • The corporation tax rate imposed to management company is between 0-12.5%.
  • Double taxation treaties
    • 55 Double Tax Treaties signed.

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