New Irish Fund Vehicle to Facilitate US Investment – the ICAV

With Irish domiciled assets reaching a record high of just over USD2trillion (euro1.6trillion), the publication by the Irish Department of Finance of the Irish Collective Asset-management Vehicle Bill 2014 (the “Bill”) on 29 July 2014 is being eagerly followed by global fund promoters. The Bill will provide for the creation of a new Irish corporate vehicle specifically for investment funds.

The ICAV is being created in response to both industry and investor demands for a fund specific vehicle that reduces the administrative burden on investment funds and provides a tax effective structure for US investors.

The Irish Minister for Finance recently stated that “this represents a milestone in delivering a new corporate vehicle for investment funds which will be more suited to the needs of the global funds industry. The ICAV will help the Irish funds industry to compete for new sources of business. I intend to push ahead with the drafting of the Bill as a matter of priority”. The Irish Funds Industry Association, who have lobbied hard for this development, believe that the Bill will be enacted by the end of 2014. The Central Bank has confirmed that it will accept applications for the new ICAV structure within 2 weeks of the publication of the final legislation.

Under the current Irish funds regime, the only corporate structure available to investors is the public limited company (“PLC”), which was not specifically designed for collective investment schemes. While the investment limited partnership does exist, it is not commonly used in Ireland due to the fact that it has only recently been deemed tax transparent and it is not able to avail of the Central Bank’s 24 hour fast track authorisation process for qualifying investor alternative investment funds (“QIAIFs”). The new ICAV will co-exist with existing fund vehicles, including the PLC and will therefore increase the number of structures available to fund promoters in Ireland.

A distinct advantage of the new ICAV is that it will be considered to be an “eligible entity” for US tax purposes, whereby it can elect to “check the box”. This is an important feature for US investors and is common among offshore fund structures, such as Cayman master-feeder funds. If a check the box election is made, the ICAV will be considered to be a tax transparent entity for US federal income tax purposes, which, in some circumstances, can produce better results for US taxpayers.

Key Features of the ICAV:

  • No Irish tax at the fund level;
  • No Irish withholding tax on distributions to non-Irish investors (and certain categories of Irish investors);
  • As it is specifically designed for the funds industry under its own legislation, it will not have to comply with many of the general requirements under Irish company law, eg, the need to convene annual general meetings can be dispensed with;
  • The Bill does not include any risk diversification/spreading requirements, which will be useful for non-UCITS QIAIFs that do not have any other risk diversification requirements;
  • Separate audited accounts can be produced for each sub-fund within an umbrella;
  • The ICAV structure can be used for both UCITS and QIAIFs;
  • Unlike PLCs, it will be able to change its constitutive document without shareholder consent where the depositary certifies that the changes do not prejudice the interests of investors;
  • Umbrella structures are permitted with segregated liability between sub-funds provided for in the legislation;
  • It is expected that QIAIFs will be able to avail of the Central Bank’s 24 hour fast track application process for authorisation;
  • ICAVs can be open or closed-ended;
  • The Central Bank will be the sole entity responsible for their registration; and
  • They can elect to “check-the box” under US tax rules.

Irish Tax Treatment

The ICAV will constitute an investment undertaking for Irish tax purposes and will therefore benefit from the favourable gross-roll up regime. This means that there is no tax at the ICAV level and income and gains can accumulate within the ICAV free from Irish tax. Irish tax is applied only when distributions are made by the ICAV or when units in the ICAV are disposed of. That tax takes the form of a withholding tax. However, withholding tax will not apply to distributions or redemption payments made by the ICAV to non-Irish resident investors (and certain categories of Irish investors). Additionally, no Irish stamp, capital or other duties apply on the issue, transfer or redemption of shares or units in an ICAV.

One of the main attractions of the ICAV is that it will be able to “check-the-box” to be treated as a transparent entity for US tax purposes, facilitating tax-efficient investment by US investors. This means that any US investors are placed in the same tax position as if they had invested directly in the underlying investments of the ICAV and will fall outside the US Passive Foreign Investment Company regime. This makes the ICAV a particularly attractive investment for US investors seeking tax efficient returns from a regulated corporate fund vehicle.

Conversion into an ICAV

Existing Irish PLCs or indeed foreign corporate funds are permitted to convert/re-domicile by way of continuation into an Irish ICAV. This means that the new fund will not be considered a new legal entity and instead can retain its existing corporate identity, track record and performance data upon its conversion into an Irish ICAV. In addition, the re-domiciliation/conversion procedure will not affect any existing contracts to which the fund is already a party and will not cause a tax event.

The conversion process is relatively straightforward and is quite similar to the current re-domiciliation process. We expect many existing PLCs to avail of this procedure. We summarise below the key steps involved in relation to the conversion of a PLC into an ICAV:

  • The PLC’s articles of association (“Articles”) must permit a conversion (most fund Articles will already provide for this). If they do not, the Articles must be amended, which will require shareholder consent. Shareholder consent will be required to effect the conversion in any event;
  • An application must be made to the Central Bank with the following documents:
  • A copy of the current PLC’s Certificate of Incorporation;
  • A certified copy of the Articles and the proposed new instrument of incorporation to be adopted;
  • A list setting out details of the directors, registered office and company secretary of the current PLC;
  • A statutory declaration by a director of the current PLC, to be made within 28 days of the date on which the application is made to the Central Bank confirming that it is not being wound up/liquidated or other similar proceedings have been initiated, that no arrangement has been entered into with creditors, that the conversion is permissible under the Articles and that all necessary shareholder consents have been obtained;
  • A declaration of solvency from the directors that the PLC is able to pay its debts as they fall due, accompanied by a report of an independent person;
  • A statutory declaration by a solicitor or a director to confirm that the above requirements have been met.
Once the Central Bank has received a complete application, it will issue a certificate of registration as an ICAV and register details of any applicable charges and securities of the PLC. The PLC will now be deemed an ICAV. It will then need to apply for de-registration as a PLC in the Companies Registration Office.

The ever changing and adapting Irish funds industry has had another record year in 2014 and based on the level of interest that we have received to date, Walkers Ireland expects the new ICAV product to replace the PLC as the fund promoters’ preferred vehicle in Ireland.

Walkers Global with 8 international offices in key financial services jurisdictions, including Ireland, the Cayman Islands, Jersey, the British Virgin Islands and London, advise many of the world’s most prominent asset managers, fund promoters and institutional investors and are well placed to advise any managers on the new Irish ICAV structure or in relation to re-domiciling into Ireland as an ICAV. We will continue to keep you posted as the ICAV legislation is finalised.


Click to view advisory