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The Alternative Investment Management Association

Alternative Investment Management Association Representing the global hedge fund industry

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FAIFs and FINROFs

Funds of Alternative Investment Funds (FAIFs) and Funds Investing in Non-Reporting Offshore Funds (FINROFs)

In February 2010, the FSA published rules allowing FAIFs, as a new type of collective investment scheme, to be marketed and distributed to retail investors in the UK and HM Treasury also published tax regulations, both to come into force on 6 March 2010.

AIMA noted that such new regime was limited primarily to AIFs which invest wholly (or almost wholly) in non-reporting funds and to AIFs with tax-exempt investors only. AIMA submitted comments to HMRC December 2010 on proposed changes to the regulations, intended to permit AIFs with holdings in non-reporting offshore funds to treat those holdings as if they were holdings in reporting funds, in certain circumstances. For AIMA managers of non-reporting funds, this created a potentially new distribution opportunity.

Regulations which subsequently came into force in March 2011 are intended to ensure that the tax rules fit commercial practice and better align the competitive position of AIFs with offshore funds by:

  • allowing a UK Authorised Investment Fund (AIF) with holdings in non-reporting offshore funds to treat those holdings as if they were holdings in reporting funds, in certain circumstances; and
  • increasing (to 50%) the proportion of assets an AIF can hold in non-reporting offshore funds before being subject to a different tax treatment.

By treating a holding in a non-reporting offshore fund as if it were a reporting offshore fund for the purposes of making distributions, an AIF will not be subject to Corporation Tax on any gains that it realises on disposal of its holding. This will result in similar tax treatment of UK investors in AIFs to that of UK investors directly invested in offshore reporting funds holding interests in non-reporting offshore funds.


Key legislative documents

Authorised Investment Funds (Tax) (Amendment)  Regulations 2011

HMT FINROF Regulations 2010


Other relevant documents

FSA Policy Statement - Funds of Alternative Investment Funds (February 2010)

 

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      1. AIFMD
      2. European Capital Markets Regulation
      3. MiFID / MiFIR
      4. UCITS
        1. ETFs and Structured UCITS
      5. Venture Capital
    2. US Hedge Fund Adviser Regulations
      1. Registration and Reporting
      2. Incentive-Based Compensation
      3. JOBS Act
    3. Asia Pacific Asset Management regulation
    4. Other Jurisdictions’ Asset Management Regulation
    5. Regulation of NBFCs / SIFIS
    6. Supervision
      1. UK regulatory reform
      2. European Supervisory Authorities
      3. US Self-Regulatory Organisations
    7. Remuneration
      1. UK
      2. US
      3. CRD IV and CRR
      4. AIFMD
      5. MiFID
    8. Shadow Banking
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      1. ESMA Guidelines
      2. MiFID / MiFIR
      3. MAD / MAR
      4. Flash Crash
      5. IOSCO
      6. Germany
      7. CFTC Automated Trading
    4. Insurance Regulation
      1. Solvency II
    5. Market Abuse
      1. MAD / MAR
      2. Indices as Benchmarks
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      1. MiFID / MiFIR
      2. CFTC Position Limits
    7. Resolution of Financial Institutions
      1. Europe
        1. EU Bank Recovery and Resolution Directive
        2. EU Non-Bank Recovery and Resolution
      2. CPSS-IOSCO
      3. Financial Stability Board
      4. UK
      5. USA
    8. Short Selling
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    11. Trading
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    3. FATCA
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    7. UK Offshore Funds Regime
    8. Other
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    1. Guidance Notes
    2. Jurisdictional Guides
    3. Noticeboard
      1. FATCA
      2. Other Hot Asset Management Topics
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      4. UK Partnership Tax Review
      5. Volcker Rule
    4. Hedge Fund Manager Training
    5. Quarterly Regulatory Update
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