The ICAV
What you need to know
Key features of the ICAV
The ICAV legislation is separate from that governing
other Irish companies – this should “future proof” against
unintended consequences arising from changes in Irish and
European company law.
The investors in an ICAV benefit from limited liability protection
(i.e. the liability of members of an ICAV is limited to the amount,
if any, unpaid on the shares respectively held by them).
There is no requirement for an ICAV to have aim of spreading
investment risk.
The Central Bank is both the registration and the supervisory
authority for the ICAV.
An ICAV may be established as an umbrella structure with a
number of sub-funds and share classes. An umbrella ICAV
has segregated liability between sub-funds. It is possible to
prepare separate accounts for each sub-fund.
ICAVs can issue debenture stock, bonds and other securities
and may be listed on a stock exchange.
Paid up share capital must be equal to the net asset value of
the ICAV.
An ICAV has a governing document known as an instrument
of incorporation (“IOI”). Similar to the memorandum and
articles of association of a plc, the IOI is the constitutional
document of an ICAV.
The board of directors of an open-ended ICAV are permitted
to elect to dispense with the holding of an annual general
meeting by giving at least 60 days written notice to all of the
ICAV’s shareholders.
The Irish Collective Asset-management Vehicle
(ICAV) is a new form of collective investment
vehicle. It sits alongside existing fund structures
(Unit Trusts, Common Contractual Funds,
Investment Limited Partnerships, and Part XIII
Investment Companies). Summarised below are
key tax and legal aspects of the new ICAV.
What is the ICAV?
The ICAV is a new form of collective investment vehicle for
UCITS funds and Alternative Investment Funds (AIFs).
It provides managers and promoters with a corporate
structure that is designed specifically for investment funds
and which is not subject to rules or requirements designed
for other forms of company (thereby helping to reduce
administrative burden and cost).
Like an investment company, an ICAV is a corporate entity
that is governed by a board of directors and owned by
shareholders. ICAVs are regulated funds and, therefore, have
all of the benefits of a regulated structure. Consequently, an
ICAV needs an authorisation to carry on business either as an
AIF or as a UCITS.
The ICAV enhances Ireland’s competitiveness as a domicile
for investment funds by virtue of its attractive legal structure.
Critically, it also represents a simpler product for US investors
from a tax perspective.
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Alternative Investments
This treatment can be achieved because the ICAV is able to make
an election under the US “check the box” rules to be treated as a
“pass through” entity for US federal income tax purposes. This
will result in an ICAV being treated as a “partnership” (if it has
more than one investor) or a “disregarded entity” (if it has only one
investor) for US tax purposes. In contrast, an Irish fund established
as a PLC cannot use the “check the box” option because it is
deemed to be a “per se” corporation.
Until the introduction of the ICAV, Irish funds distributed to US
investors typically were established as unit trusts or investment
limited partnerships in order to achieve this “pass through”
treatment. Irish master-feeder funds typically used a unit trust at
the master level for this purpose. Although unit trusts may not
be subject to the US PFIC rules, they are not as familiar to US or
other global investors as a corporate structure that can “check the
box”. An ICAV may be used at the master level while the feeder
fund may be either an ICAV, PLC, unit trust, or investment limited
partnership.
The ability to convert an existing fund into an ICAV or re-
domicile a foreign fund in Ireland as an ICAV is usually tax
neutral. However, the particular facts and circumstances will
determine whether this will be the case. Consequently, careful
consideration should be given to whether the conversion or
re-domiciliation might crystallise any taxes or adversely impact
on an investor’s tax position. Particular care is needed where
“check the box” elections are required or where the converting /
re-domiciling fund changes its “check the box” status.
In addition, while an ICAV may elect to be treated as a “pass
through” entity for US federal income tax purposes, it is, in
general, respected as a corporate entity in most other jurisdictions.
Many jurisdictions provide for more favourable tax treatments in
respect of dividends and gains on share transfers. The fact that
the ICAV is a body corporate makes it more likely to have the right
to treaty access in cases of treaties where the status of non-
corporate entities (such as unit trusts) is not recognised.
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Formations, Conversions, Redomiciliations, & Mergers
There is a streamlined and relatively straight forward procedure for:
the establishment of a new investment fund as an ICAV;
the conversion of an existing Irish Company to an ICAV;
the migrating or re-domiciling investment funds established as
companies to Ireland as ICAVs; and
a merger involving an ICAV as the receiving fund.
Taxation of the ICAV
ICAVs are subject to the same tax regime as other Irish funds.
The key components of this regime are as follows:
No Irish income tax at the fund level.
41% exit tax on distributions to Irish investors but no Irish
withholding tax / exit tax on all distributions to non-Irish
investors and certain categories of Irish investors.
No Irish withholding tax / exit tax on all distributions where
the shares are held in a recognised clearance system.
No transfer taxes on the issue, redemption or transfer
of shares.
No hidden taxes (e.g. wealth taxes / net asset taxes).
Access to Ireland’s extensive double taxation agreements
minimising the effects of foreign withholding taxes on returns
on investments.
Exemptions from Value Added Tax for many services required
by a fund (in particular fund management services).
US taxation advantages of the ICAV
The ICAV is attractive to US investors as it simplifies the US tax
treatment. This is because the ICAV effectively allows taxable US
investors to be in the same tax position as if they had invested
directly in the underlying investments of the ICAV. This treatment
allows US investors access to relief under US tax treaties as well
as the ability to use tax credits attaching to investments made
by the fund. It also means that the complex US Passive Foreign
Investment Company (PFIC) regime does not apply.
E
S
Vincent Reilly
Head of Alternative Investments
KPMG Ireland
t: +353 1 410 1378
Michael Hayes
Head of Alternative Investments Tax
KPMG Ireland
t: +353 1 410 1656
e: michael.hay[email protected]
Gareth Bryan
Tax Partner
KPMG Ireland
t: +353 1 410 2434
Francis Hackett
Chairman, Legal Services
KPMG Ireland
t: +353 1 700 4462
e: francis.hacket[email protected]
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