Irish legislation encourages funds to relocate

The Irish government passed legislation on Friday in an attempt to attract funds from offshore locations such as the Cayman Islands to Dublin.

According to London-based International Financial Services London the Cayman Islands is home to the largest share of offshore-domiciled hedge funds, with an estimated 67 per cent market share, followed by the British Virgin Islands with 11 per cent and Bermuda with 7 per cent.

The relocation of a fund to Dublin is accelerated by the Companies (Miscellaneous Provisions) Act 2009 as the setting up of a new company is no longer required.

Although some regulatory hoops remain, including arranging the departure in a shareholder meeting and notifying the Companies Registration Office in Ireland, the law facilitates the process and eliminates the risk of potential tax liabilities for investors.

The law changes are designed to take advantage of a planned European Union directive on alternative investment funds, which is proposing a ban on the marketing of offshore funds within the EU.

If passed into national legislation in the current form the directive would incentivise the move of certain funds to the EU. In particular, it would impact Cayman-domiciled funds that target European investors.

Some European observers claim that recently there has already been increasing investor demand for regulated European domiciled funds.

In addition certain investors, for example pension funds in Italy, are prevented from investing in offshore funds.

Ireland and Luxembourg are deemed to benefit most from the EU directive. Ireland is currently the leading EU fund administration location with more than 10,000 funds under management. Most of these funds are domiciled in low-tax offshore locations and managed from financial centres such as New York or London.