In the Czech Republic, foreign investors can choose to set up either a business or an investment fund as their vehicle for investing. Commercial firms must comply with one set of rules in the Czech Republic, while investment funds must adhere to different regulations. The Investment Companies and Investment Funds Act is the piece of legislation responsible for regulating investment vehicles in the Czech Republic. One of the options available to international investors looking to establish business activities in the Czech Republic is to participate in a Czech investment fund. The legislation in the Czech Republic provides a diverse selection of investment vehicles to cater to a broad spectrum of investors. Because the Czech Republic is a member state of the European Union (EU), its investment fund legislation follows the guidelines established by the EU in a number of its directives. Damnation company formation experts on our staff can assist you in complying with the regulations that are associated with this piece of legislation.
Legislation in the Czech Republic about investment funds
The newly enacted Czech Investment Companies and Investment Funds Act will benefit investors on domestic and international levels. The Act resulted in the creation of several new investment vehicles, including the following:
Investment vehicles include trust funds and SICAVs (investment companies with variable capital), to name just two examples.
The Act was modified following the Directive on Alternative Investment Fund Managers, which prompted the amendments (AIMF). The new Act allows investment funds and other kinds of investment organizations that handle the assets of investment funds to organize businesses in the Czech Republic, which is something that companies interested in forming a business in the Czech Republic should be aware of.
In addition, regulations for the industry are provided by the Czech National Bank, which is the primary regulator of investment vehicles in the Czech Republic and is responsible for regulating the sector. We can lend a hand to you if you require assistance with the procedure for registering, which is regulated by the Czech National Bank.
The various kinds of investment funds available in the Czech Republic
Even though the investment market in the Czech Republic is not quite as established as it is in other European states, more than 1,200 overseas investment funds were registered in the country in 2014. The applicable legislation distinguishes between open-ended and closed-ended funds, a characteristic that refers to the constraints applied for issuing shares. Generally, this distinction is made between open-ended funds and closed-ended funds.
Investors have the option of establishing an investment vehicle that will be registered with any one of the following legal entities:
• joint-stock firms
• investment companies with changeable capital
• limited partnerships
• limited liability corporations
• mutual funds
• trust funds
Prerequisites for getting an investment fund registered in the Czech Republic
A minimum capital contribution of 1.25 million Euros will be required from the investors before establishing a company that will be shown as an investment fund. The Czech National Bank (CNB), the primary regulatory agency based for this category of vehicles, has the authority to approve investment funds. However, this approval is only granted under specific circumstances.
The information about the statute of an investment fund in the Czech Republic can be found in the Decree of the 24th of July 2013, which the CNB issued. This Decree stipulates what information should be provided on the investment fund and its managers and the investment strategies carried out under the respective vehicle.
Register with the National Bank of the Czech Republic.
Managers of alternative investment funds must register with the Czech National Bank following the new Act, which is the legislation that gives effect to the AIMF regulations (CNB). In addition, any individuals considering making financial investments in the Czech Republic must inform the CNB of their intentions in this regard.
In some circumstances, such as when the value of the investment project surpasses the thresholds established by the applicable legislation, the CNB will give permission.
What is unique about Czech QIFs?
Since its inception in 2007, the QIF has been aimed at qualified investors, who can be represented by either legal entities (banks, credit institutions) or natural persons (such as accredited investors) with substantial experience in the financial sector. Because of their lesser level of regulation than other forms of funds, QIFs are called alternative investment funds.
A joint-stock company is the first step in registering a Czech QIF for foreign and local investors. Investors must put a minimum of CZK 50 million into the QIF before it can be registered as a mutual fund or another type of QIF (EUR 2 million).
As per Czech law, the fund’s founders can raise this capital within one year of receiving a license to operate in the Czech Republic. Thus, it is essential to know that the money does not have to be deposited upon incorporation.
A well-diversified portfolio of investments is a prerequisite for this particular sort of fund. Because of this, the Czech National Bank has mandated that all Czech QIFs must invest in at least two asset classes. Investments in a single asset, for example, are prohibited from exceeding 50% of the total value of the fund’s investments.
In the Czech QIF market, investors can be either natural individuals or legal organizations. Each investor must contribute at least CZK 1 million (about $1 million) to the fund, which is limited to 100 qualified investors by law.
Do Czech funds’ assets have a monetary value?
Investment funds based in the Czech Republic are monitored by the Central Bank of the Czech Republic. Information on EU investment funds and other financial institutions is then sent to the European Central Bank (ECB).
A total of CZK 185.162 million was held in Czech funds in equity and investment fund shares; CZK 109.578 million was held in debt securities; CZK 60.357 million was held in currency and deposits; CZK 46.424 million was held in loans, and CZK 13.243 million was held in other types of accounts receivable (CZK 117 billion).
You can establish an investment fund in the Czech Republic.
The Czech National Bank is the primary regulator of investment funds in the Czech Republic. It is also responsible for governing business registration for investment funds in the Czech Republic. Although the minimum amount of capital that must be contributed to establishing a registered investment fund in the Czech Republic is 1.25 million euros, this number may change depending on the type of fund written.
One example of a form of Czech collective investment fund is a UCITS fund, which stands for “undertakings for collective investment in transferable securities.” Other types of Czech collective investment funds include non-UCITS funds. The UCITS in the Czech Republic can be organized either as a SICAV, defined as “an investment company with variable capital,” or as an FCP (an open-ended fund). The following aspects of UCITS funds can be discussed in greater depth by our team of consultants specializing in the registration of Czech companies:
In comparison, funds that have shown an internal management structure must have initial money of 1.25 million euros. The initial capital for both funds must be raised within six months of the entity’s incorporation. However, the initial capital needs must be fulfilled within six months following the fund’s establishment. This requirement is contingent on the management structure of the fund.
What are the necessary actions to bring an end to a Czech investment fund?
The process of winding down investment funds is analogous to other company companies. In the Czech Republic, the Czech National Bank and the local courts are required to be involved in forming any firm, regardless of the type of funding utilized. If investment funds with a legal personality fail, the Czech National Bank will select a liquidator to handle the situation.
If the fund does not have its legal personality, the procedure will be carried out differently. This description applies to the Czech Free Communist Party, which does not exist as a separate legal body.
The administrator will handle the redemption of shares, while the management will be responsible for liquidating the fund’s assets to pay down the fund’s liabilities.
Investors thinking about establishing a company in the Czech Republic should be aware that investment funds in that country will not be subject to the same level of taxation after the year 2015 as they were before the passage of this new Act. Those investors should consider this information.
Our Damalion investment funds experts invite overseas investors interested in creating an investment fund in Czech Republic.