Foundation of a Fund in Liechtenstein

With the implementation of the European UCITS-IV Directive and AIFM Directive, the original Liechtenstein legislation on Funds has been replaced by Liechtenstein‘s Certain Undertakings for the Collective Investment of Transferable Securities Act (UCITSG) and Liechtenstein‘s Alternative Investment Fund Managers Act (AIFMG).

The new legislation contains the follow provisions:

The Certain Undertakings for the Collective Investment of Transferable Securities Act (UCITSG) regulates the licensing, supervision, investment activity and the management companies of funds formed in or offering their services from Liechtenstein which undertake the collective investment of transferable securities.

The Alternative Investment Funds Managers Act (AIFMG) regulates, for the first time, alternative investment fund managers (AIFM) undertaking the portfolio- and risk management of alternative investment Funds not already regulated by the Certain Undertakings for the Collective Investment of Transferable Securities Act (UCITSG). In addition to the EU passport for these funds and alternative investment fund managers, the said Act introduces further obligations. These include the obligation on alternative investment fund managers to notify and to obtain a licence from Liechtenstein’s Financial Market Authority (FMA).

In addition to those Fund structures already regulated by the Undertakings for Collective Investment in Transferable Securities (UCITSG), the Alternative Investment Funds Managers Act (AIFMG) makes investment limited liability partnerships possible in Liechtenstein in which one partner is required to be subject to unlimited liability. This is similar to a Luxembourgian SICAR. Moreover, the said Act makes an investment limited liability partnership in which no partner is subject to unlimited liability possible in Liechtenstein.

The Alternative Investment Funds Managers Act (AIFMG) requires a self-managed alternative investment fund in Liechtenstein to have a minimum starting capital of 300,000 Euros (or the equivalent sum in Swiss Francs). The Act also requires an alternative investment fund in Liechtenstein managed by an alternative investment fund manager to have a minimum starting capital of 125,000 Euros (or the equivalent sum in Swiss Francs).

Types of Funds in Liechtenstein

Collective Investment of Transferable Securities (UCITS) Products

Collective Investment of Transferable Securities funds in Liechtenstein deal with securities, such as shares or bonds, as well as other financial products such as derivatives. Collective Investment of Transferable Securities funds in Liechtenstein are able to offer and provide their services throughout the European Union. However, such funds are only permitted to offer and provide their services throughout the entire European Economic Area (EEA) once they have obtained a licence to do so from Liechtenstein‘s Financial Market Authority (FMA). To ensure its safekeeping, the products of a Collective Investment of Transferable Securities (UCITS) Funds in Liechtenstein must be transferred to a bank, a securities firm or other person supervised by Liechtenstein‘s Financial Market Authority (FMA) who is permanently resident in Liechtenstein or is a Liechtenstein resident company.

Non-Collective Investment of Transferable Securities Products

• Investment Companies for Other Assets
  This type of fund describes those investment companies neither specialising in securities nor in real estate. Instead, this type of fund deals with investments which are marketable only to a limited extent; which are subject to significant price fluctuations; which show a limited spreading of the risk or whose valuation is complex. In particular, investments in earth metals, mass-market goods and derivative financial instruments are permissible with this type of fund.
• Investment Companies for Other Assets with Increased Risk
  This type of fund is characterised by a particularly increased risk-profile in comparison to funds for other assets. This type of fund permits -amongst other activities- additional borrowing and the speculating in and short-selling of derivatives.
• Investment Companies for Qualified Investors
  This type of Liechstentein fund is subject to special restrictions as regards the qualifications of the investor. Those who satisfy the special restrictions in regard to the qualifications of the investor include, for example, banks, insurers, asset managers, funds, other companies and family offices. This type of fund affords limited protection to its investors and is not required to apply to Liechtenstein‘s Financial Market Authority (FMA) for a licence. With this type of fund, it is presumed that the risks are clear to the qualified investor due to the qualified investor‘s experience, legal form, assets and the volume of his investments hitherto.
• Investment Companies for Real Estate
  In accordance with the principle of the spreading of risk, this type of fund enables the direct or indirect investment in private- or commercially used real estate.
  This type of fund, a non-collective investment of transferable securities fund, requires that its minimum fund volume amounts to 2 million Swiss Francs (or the equivalent sum in a different currency). This minimum fund volume must be achieved within six months of the first subscription and thereafter the Fund volume is not permitted to drop below the said 2 million Swiss Francs level (or the equivalent sum in a different currency).

Types of Funds in Liechtenstein according to UCITSG

A fund in Liechtenstein can adopt the following legal forms:

Investment Fund (Contractual Investment Fund)

An Investment Fund in Liechtenstein does not have legal personality. Instead, it is formed through a Fund contract between several investors for the formation of a management company and a place of safekeeping to facilitate the investment, management and safekeeping of its assets. This is done in the name of its investors in the form of a legally separate pool of assets (fund) in which the investors are involved. The content of each investor‘s contract is identical. An Investment Fund in Liechtenstein requires to be registered in the Commercial Register, which is a public register, following the gaining of approval to operate from Liechtenstein‘s Financial Market Authority (FMA).

Collective Trust

A Collective Trust in Liechtenstein similarly does not have legal personality. A Collective Trust in Liechtenstein is a Trust formed through a Trust deed with an undefined number of investors for the investment and management of its assets in the name of the investors. The content of each investor‘s contract is identical. The individual investors are only personally liable for a value amounting to, and not exceeding, their respective individual investment amounts. A Collective Trust in Liechtenstein requires to be registered in the Commercial Register, which is a public register, following the gaining of approval to operate from Liechtenstein‘s Financial Market Authority (FMA).

Investment Company

An Investment Company in Liechtenstein which has the sole purpose of the investment and management of its assets in the name of its investors may be formed as a Public Limited Company (PLC., Corp.), as a European company (SE) or as a Liechtenstein Establishment. Its capital may be variable (SICAV) or fixed (SICAF). An investment company in Liechtenstein may be internally managed or it may be externally managed by an external administrative agency. In contrast to an Investment Fund and a Collective Trust in Liechtenstein, an Investment Company in Liechtenstein officially comes into existence upon entry in the Commercial Register.

All fund structures in Liechtenstein having the form of a management company are required to apply for and obtain a licence from Liechtenstein‘s Financial Market Authority (FMA). The exception to this requirement is those investment companies in Liechtenstein which are self-managed.

Advantages of Trusts in Liechtenstein

Corporate Income Tax

An investment company which has its registered office in Liechtenstein or actual administration in Liechtenstein is fully liable for corporate income tax on its entire taxable income in Liechtenstein. An annual flat income tax rate of 12.5% on its taxable income must be paid annually. Due to the interest deduction on equity capital, a deduction of 4% is to be deducted when calculating an investment company‘s tax liability. The minimum income tax is 1,800 Swiss Francs. Moreover, legal entities in Liechtenstein which hold shares in a fund may qualify for preferential tax treatment as a Private Asset Structure (PAS). If a legal entity in Liechtenstein does qualify as a Private Asset Structure (PAS), it is required only to pay a minimum income tax of 1,800 Swiss Francs.

Issue Stamp Duty and Formation Fee

No issue stamp duty or formation fee is required to be paid by an Investment Fund (Contractual Investment Fund) on the creation of shares in managed assets. Furthermore, no issue stamp duty or formation fee is required to be paid on shares in the share capital of or shares in the managed assets of an investment company with variable capital.

In contrast thereto, an investment company in Liechtenstein with fixed capital must pay issue stamp duty of 1% on the issuing of shares and on any increase in the nominal values of the shares. The said issue stamp duty requires only to be paid if the consideration therefor exceeds one million Swiss Francs.

Transfer Tax

A transfer tax in Liechtenstein is required to be paid if there is a non-gratuitous transfer of shares in managed assets provided that one of the parties or an intermediary is a domestic securities dealer. The transfer tax is not payable on the re-purchase and issuance of shares in funds in Liechtenstein.

Tax Exemption

Assets in Liechtenstein which are managed are exempt from tax. Net investment proceeds are similarly exempt from tax in Liechtenstein. As a result of Liechtenstein’s tax reforms, the capital tax was abolished as was the corporate income and coupon taxes distribution surcharge. Notwithstanding this, the coupon tax exemption does not apply to those old reserves that were in existence as at 31st December 2010. Consequently, the distribution of the old reserves was subject to the reduced tax rate of 2% in 2011 and 2012 and is subject to a tax rate of 4% in the years thereafter. Moreover, Value Added Tax (VAT) is not payable on fund payments.

Easier Access to European Markets

Membership of the European Economic Area (EEA) provides fund management companies and UCITS and AIF-compliant investment funds in Liechtenstein, under certain conditions, with easy and non-discriminatory access to the European market.