Starting Alternative Investment Fund in Estonia Our lawyers will help you to establish a small alternative investment fund ("AIF" - limited partnership) correctly and obtain the necessary registration at the Estonian Financial Supervision Authority ("FSA"). Why start AIF in Estonia Estonia has implemented attractive legislation for closed-end collective private equity and venture capital similar to investment schemes in the UK and Luxembour, whereas establishment costs are considerably lower. How to start AIF Register a General Partner (a legal person, ltd, for instance) in Estonia. Apply for a confirmation from the FSA that the General Partner or the fund management company has been properly registered or authorised as an alternative investment fund manager. General Partner submits an application to the Estonian Commercial Register to establish the AIF. Benefits Less strict requirements to publish the identity of its limited partners (investors) and the amount of the investments made by each investor. Considerably lower cost of establishment compared to the UK and Luxembourg. Relatively fast registration process – around 5-20 working days for the AIF, up to 2 months if the General Partner registers its activities at the FSA. Summary The Estonian AIF structure includes all best elements of the VC fund framework in popular investment funds jurisdictions to enable investors and fund managers to set up and manage VC funds at a low cost. A small fund manager does not need a license, except when managing public limited fund or common fund, but nevertheless the fund manager needs to register its activities with the Financial Supervision Authority. |
Who can manage AIF and How AIF can be managed
The General Partner can manage an AIF if it is an investment fund manager that has either obtained an investment fund manager licence from an EEA state;
obtained a licence of a fund manager from the Estonian authority (FSA), or; registered its activities at the FSA.
The third option (registration at the FSA) comes with the least restrictions for the activities of AIF, including no requirements to the share capital, to the own funds of AIF, or to the board members of the General Partner. The registration option can be used only if AIF's units are not offered publicly and the General Partner only manages funds that are less than EUR 100M total assets (incl. leverages) through all sub-funds, or less than EUR 500M total assets if all sub-funds are unleveraged and any investments made into any sub-funds do not allow exits within 5 years as of the date of the investments made.
obtained a licence of a fund manager from the Estonian authority (FSA), or; registered its activities at the FSA.
The third option (registration at the FSA) comes with the least restrictions for the activities of AIF, including no requirements to the share capital, to the own funds of AIF, or to the board members of the General Partner. The registration option can be used only if AIF's units are not offered publicly and the General Partner only manages funds that are less than EUR 100M total assets (incl. leverages) through all sub-funds, or less than EUR 500M total assets if all sub-funds are unleveraged and any investments made into any sub-funds do not allow exits within 5 years as of the date of the investments made.
GP obligations and GP/LP liabilities
The General Partners (GP) are required to submit once a year to the FSA the data on its managed funds and the fund's investment policies.
The liabilities of the General Partner:
unlimited liability for the obligations of the fund.
The liabilities of the Limited Partners:
limited to the amount of the limited partner's contribution to the AIF; limited if the limited partner refrains from participating in the day-to- day management of the fund (so-called "Safe Harbour" clauses).
The liabilities of the General Partner:
unlimited liability for the obligations of the fund.
The liabilities of the Limited Partners:
limited to the amount of the limited partner's contribution to the AIF; limited if the limited partner refrains from participating in the day-to- day management of the fund (so-called "Safe Harbour" clauses).
Taxation and liabilities
All AIF-s registered in Estonia are tax transparent, meaning that the AIF is not a person liable for tax in Estonia. Any profit earned by the fund will be treated as the profit of the investors (i.e. the look-through principle).
The system of corporate earnings taxation in Estonia is unique, since it shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. It means that as long the profit is not distributed, there is no corporate income tax (CIT) applicable to the company (unless some other costs must be taxed). This makes the tax system for investors transparent and attracting.
More information on taxation here.
The system of corporate earnings taxation in Estonia is unique, since it shifts the moment of corporate taxation from the moment of earning the profits to the moment of their distribution. It means that as long the profit is not distributed, there is no corporate income tax (CIT) applicable to the company (unless some other costs must be taxed). This makes the tax system for investors transparent and attracting.
More information on taxation here.
Limited Partnership Agreement ("LPA") terms
The AIF's activities are governed by the LPA concluded between the General Partner and the limited partner(s). There are a few mandatory rules for an AIF, such as:
prohibition to publicly offer the AIF's units; restrictions on restructuring, and; limitation for the funds to only manage their own asset.
The majority of the AIF's governance-related matters (i.e. investment policies, contributions, distribution of profits, termination of the partnership) are up to the partners to agree upon in the LPA.
prohibition to publicly offer the AIF's units; restrictions on restructuring, and; limitation for the funds to only manage their own asset.
The majority of the AIF's governance-related matters (i.e. investment policies, contributions, distribution of profits, termination of the partnership) are up to the partners to agree upon in the LPA.