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 Conduct Authority (FCA), 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.