Guest Blog: Ireland, the preferred choice for ETFs
By Tara O’Reilly, Partner and Co-Head of Asset Management and Investment Funds Group at Arthur Cox
Ireland has seen great success in 2022 with more than 50% of all European Exchange Traded Funds (“ETFs”) established in this undisputed domicile of choice. In this guest blog we cover why ETFs are choosing Ireland, and what makes it the ETF hub of excellence in Europe?
Why Ireland?
It’s taken 20 years of innovative practises and initiatives for Ireland to be seen as leaders in all sectors of the ETF evolution and ecosystem. Through its mature, robust and flexible regulatory framework, Ireland continues to support the successful development of the European ETF market.
As the European home for many global ETF issuers, Ireland has a broad and unique operating model and at its forefront well-established products, operational and infrastructure developments and highly reputable service providers that support global issuers with their continued growth and success.
The ease of using Ireland
Through its robust legal structure, Ireland’s Collective Asset-management Vehicle (“ICAV”), is ideally suited to ETFs. The ICAV is corporate in nature and has the required flexibility to facilitate the unique engagement that ETFs have with their investors. Not only this, but it also accommodates the ICSD settlement model and can meet the requirements for US ‘tick the box’ purposes.
Irish ETFs are UCITs, falling under a regulatory framework that has the flexibility to allow a wide variety of strategies and exposures, including index-tracking and actively managed ETFs with both physical and synthetic exposures. With the globally recognised UCITS brand, Irish ETFs can be sold publicly in any EU Member State and in many other countries globally.
With Ireland as a major hub for cross-border fund distribution, Irish ETFs are well placed for distribution. Irish ETFs are also well recognised on many listing venues and Euronext Dublin offers a straightforward primary listing that, once registered in the UK, can link the ETF onto a listing on the London Stock Exchange’s (LSE) main market, giving access to that market with significant time and cost savings.
Sophisticated ecosystem supporting success
The Irish ETF market is serviced by well-experienced ETF experts across all administration, depositary, legal, tax, accounting and audit services. There’s no substitute for experience and ETF issuers benefit from the maturity of the Irish service model and sophisticated service providers with highly automated and scalable global models. As such, the jurisdiction offers issuers the ability to set up an ETF as a full proprietary model, third-party managed fund or on an existing ETF platform.
The Central Bank of Ireland (“CBI”) has vast experience and oversight of ETFs and is recognised as a global leader, having itself undertaken a considerable review of ETFs and showcased its specialist knowledge.
The CBI’s innovation on several matters has fast-tracked important developments in the European ETF market. It understands the operational differences for ETFs, allowing for different dealing cut-off times for hedged and unhedged classes and for cash and in-kind dealing, and how to review the more bespoke indices of the newer thematic ETFs. Encouragingly, the CBI remains open to considering new approaches to portfolio transparency.
The importance of ETF issuers being able to work within a clear regulatory process, set timeframes and have the capacity for discussion, cannot be underestimated.
Transparent and favourable tax treaties
Irish ETFs also operate under a national tax regime that is clear, transparent and fully compliant with OECD guidelines and EU law. As such, ETFs benefit from the neutral tax regime that applies to all Irish funds as well as Ireland’s broad double tax treaty network which spans over 70 countries across the EMEA, Asia and Americas region.
The availability of treaty benefits in a particular case will ultimately depend on the relevant tax treaty and the approach of the tax authorities in the treaty country but, for example, treaty relief under the Ireland/US tax treaty, if conditions are met, would result in a net withholding tax rate of 15% on US dividend income.
Irelands developed and favourable tax regime underpins a modern, international and open economy, conveniently situated in the middle of the US, European and Asian time zones in a jurisdiction which is a member of the EU, Eurozone, OECD, FATF and IOSCO.
ETFs for the future
Through international reach and recognition, Ireland is and will continue to play a significant part in the evolution of the European ETF market.
About the author: Tara is a Partner and Co-Head of Arthur Cox’ Asset Management and Investment Funds Group. Tara has a particular expertise in ETFs and has in-depth knowledge on the establishment, organisational structures, internal processes, and legal and regulatory obligations of Irish domiciled ETFs. Tara is a leadership member of the Irish chapter of Women in ETFs and also a former member of the EFAMA ETF working group and a former member of the Council of Irish Funds.
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In addition to our full-service offering, we have a fully licensed third-party AIFM and Management Company (ManCo) in Dublin, Ireland and deliver fund solutions to renowned investment managers and fund initiators. Contact us to find out more about Apex Group’s ETF services.
