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Audience

OEICs and SICAVs fund structures explained

The retail funds offered by M&G in Europe are established as sub-funds of UK-domiciled open-ended investment companies (OEICs), or as stand-alone OEICs.

In this note, we summarise the key features of the OEIC structure, in comparison with the Luxembourg-domiciled société d'investissement à capital variable (SICAV), looking at two main areas; legal structure and regulation, and fund taxation. The tabulated information below demonstrates that the UK-domiciled OEIC structure does not put the European investor at any material tax disadvantage, compared with the Luxembourg-domiciled SICAV structure.

We also outline the background to our decision of the OEIC structure for the M&G retail funds.

Legal structure and regulation

OEIC SICAV
Definition
  • Open-ended investment company (UK-domiciled)
  • Société d'investissement à capital variable (Luxembourg-domiciled)
Background
  • A collective investment vehicle established in company form, domiciled in the UK
  • Commonly used in the UK, also used in Western Europe and other regions
  • Introduced in the UK in 1997 as a flexible alternative to unit trusts
  • A collective investment vehicle established in company form, domiciled in Luxembourg
  • Commonly used in Western Europe, also in other regions
  • Introduced early in the last century
Legal structure / UCITS
  • An OEIC can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • It can issue a range of shares, including hedged shares
  • It can be established to comply with UCITS or non-UCITS rules
  • A SICAV can be established as an umbrella company with a number of sub-funds, or as a stand-alone fund
  • It can issue a range of shares, including hedged shares
  • It can be established to comply with UCITS or non-UCITS rules
Regulatory authority
  • Financial Services Authority (FSA), in the UK
  • Commission Service du Secteur Financier (CSSF), in Luxembourg
Corporate governance
  • The Authorised Corporate Director (ACD) is responsible for the day-do-day operation of the OEIC
  • A SICAV can have a specific management company or be managed by its Board of Directors
Role of Depositary / Custodian
  • A Depositary is responsible for the custody of fund assets
  • The Depositary is also responsible for oversight of the ACD
  • The Depositary and ACD must be completely independent
  • A Custodian (Luxembourg-based) is responsible for the custody of fund assets and ensuring the interests of investors are maintained
  • Oversight is usually undertaken by the Board of Directors
Segregation of liability between sub-funds
  • Legislation to allow the segregation of liability between sub-funds in an umbrella OEIC has recently been introduced in the UK
  • Segregation of liability between sub-funds is provided for under Luxembourg law

Fund taxation

OEIC  SICAV
Fund Income
  • Income, net of expenses, is subject to UK corporation tax at 20%
  • ‘Income’ includes interest income and property income
  • Company dividends held by a fund are not taxable
  • Bond funds with more than 60% in debt assets pay no tax 
  • No tax is levied on the fund – all tax arises in the hands of the investor
Withholding tax
  • OEIC funds pay withholding tax on foreign dividends, levied by the country in which the dividend is paid
  • Due to the wide range of tax treaties in place with the UK, withholding tax is generally paid only at the treaty rate of 15%
  • Very few SICAV funds benefit from tax treaties; foreign dividends are therefore generally taxed at the rate of 30%
Other fund issues
  • Stamp Duty Reserve Tax of 0.5% is paid on transactions in UK equities
  • Taxe d'abonnement of 0.05% pa (0.01% pa for cash and currency funds) is based on fund net asset value

Investor taxation

OEIC  SICAV
Fund Income
  • Most European investors are taxed only on the actual distributions received (e.g., Italy, Spain), or on deemed investment returns from funds (Germany, Austria)
  • Most European investors are taxed only on the actual distributions received (e.g., Italy, Spain), or on deemed investment returns from funds (Germany, Austria)
Withholding tax
  • Non-UK investors can receive interest distributions from bond funds (with more than 60% in debt assets) gross of tax
 

M&G retail funds

For most practical purposes, the OEIC and SICAV structures are very similar, both offering the ability to establish umbrella companies with a number of single-priced sub-funds, and within the UCITS regime.

When M&G first considered offering funds in European markets, we had the option of converting existing UK unit trusts into sub-funds of an OEIC structure, or of setting up new funds in a SICAV structure.

The former route enabled us to distribute our existing UK-domiciled funds, such as the M&G Global Basics 

Fund, and subsequently launched funds, such as the M&G Optimal Income Fund, into Europe at no material tax disadvantage to the European investor.

In reality there is no tax difference between an OEIC structure and a SICAV structure, as very few OEIC funds actually pay tax. Further, UK-domiciled OEIC funds will suffer lower withholding taxes than SICAV funds.

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For investment professionals only. Not for onward distribution to any other type of client. No other persons should rely on the information contained on this website. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and you may not get back the original amount you invested.