There is, in theory, a wide variety of potential fund domiciles which are available to mutual fund sponsors. While there will always be a niche for certain smaller domiciles, it is inevitable that the larger, well established and relatively sophisticated jurisdictions will continue to be the most appealing to fund sponsors who are contemplating launching a fund offshore. It is clear that Ireland is now firmly in the latter category. Notwithstanding the vigorous competition between domiciles, Ireland continues to thrive as a domicile for establishing funds and also as a centre for excellence in fund administration. This is apparent from the impressive list of fund promoters, administrators and custodians who have chosen to launch products out of Ireland or to establish their own operations in Dublin’s International Financial Services Centre ("IFSC"). It is also apparent from the continuing trend of significant growth in the number and size of the assets of the funds which are domiciled in Ireland. For example, in June 1995 a total of 544 funds and sub-funds were being regulated by the Central Bank of Ireland. This figure had grown to 1,205 funds by June, 1999. The growth in asset size has been no less impressive. In June 1995, the total net asset value of funds domiciled in Ireland stood at US$21 billion. This had grown to US$108.6 billion by June, 1999. (Source: Fitzrovia Dublin Fund Encyclopaedia 1999/2000).
To understand Ireland’s suitability as a fund domicile, it is necessary to consider the key considerations which influence the decision to establish offshore funds. These include taxation, the legal and regulatory environment, the geographic location and infrastructure, investor and sponsor perception and cost.
- Taxation in an offshore domicile should not impact on a fund’s performance or impose any withholdings on payments to investors. Overseas investors in funds which are established in the IFSC and regulated by the Central Bank, and the funds themselves, operate free of Irish taxes on income and capital gains, stamp duties or other taxation and payments can be made to investors without any withholding. Ireland has an expanding network of 35 double taxation treaties which Irish funds are not precluded from accessing.
- The legal and regulatory regime in a domicile impacts on the ease with which a product can be legally established and approved by the relevant regulatory agency. Successive Irish governments have been responsive to the needs of the international funds industry and have been pro-active in implementing legislative changes in the financial services sector generally which have enabled Ireland to offer a wide range of internationally competitive investment products. The regulator of the funds industry in Ireland, namely the Central Bank of Ireland, has proved to be a fair, flexible and accessible regulator which is willing to work with the members of the industry while staying within the confines of its statutory responsibilities.
- Despite its indifferent climate(!), the working environment in Dublin is suitable for investment funds and the global communications challenges they pose. Ireland has a sophisticated telecommunications infrastructure, a well educated young work force, a pool of expert professional advisers and geographically is easily accessible from London, other European capitals and from the United States. It is also possible to list domiciled and non-domiciled funds on the Irish Stock Exchange which can often be a key requirement for a fund to be eligible for investment by institutional investors.
- The international perception of a domicile like Dublin can be difficult to gauge because it is based on various intangibles. It is important to anybody looking to set up an offshore fund that they feel comfortable in doing business in the jurisdiction which they select. Dublin provides a refreshing alternative in this respect and a lot of its success can be attributed to the enthusiasm and commitment shown by the participants in the Irish funds community to promoting Ireland as a fund domicile, as well as promoting their respective services.
- Cost will always be a significant factor in any decision to establish a fund offshore and Dublin remains competitive in this regard, although costs are rising due to Dublin becoming a victim of its own success! However, Dublin is not alone among offshore domiciles in this respect.
Other features which have contributed to Ireland’s suitability as a fund domicile includes Ireland’s membership of the European Union, EMU and the OECD, its economic and political stability and, in the early stages of the IFSC, the availability of significant fiscal advantages to organisations establishing operations there. Other advantages and reasons for establishing in Dublin continue to emerge, such as the Irish government’s stated commitment to reducing the general corporation tax rate to 12½% with effect from 2003 and the development of a reputation for Ireland as a centre for fund administration excellence. This has in part resulted from the significant volume of non-domiciled funds which are now administered in Ireland. This has enhanced the expertise and knowhow of the participants in the Irish funds industry.
The size and international profile of the industry and its participants mean that Ireland is well placed to benefit from the continuing wave of consolidation in the financial services sector and from its strategic geographic location between the United States and Continental Europe. The standards of professionalism, service quality and flexibility which are hallmarks of the Irish funds industry should ensure that Ireland continues to be a leading offshore fund domicile.
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.