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Open an Investment Fund in Czech Republic
Updated on Friday 10th April 2020 Rate this article
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Foreign investors can open a company in the Czech Republic, but they can also set up an investment fund. The legislation applicable to investment funds in Czech Republic is different than the one applicable to commercial companies. Investment vehicles in Czech Republic are regulated under the Act on Investment Companies and Investment Funds and our team of company formation representatives can offer assistance on the regulations related to this law. The Act was modified in 2013 in order to align with the regulations imposed on investment funds by the European Union.
Investment fund legislation in Czech Republic
The new Act on Investment Companies and Investment Funds provides new investment opportunities to both local and foreign investors. The Act establishes new investment vehicles, as follows:
• SICAV (investment company with variable capital);
• trust funds.
The Act was modified in order to align with the regulations available under the Directive on Alternative Investment Fund Managers (AIMF). Investors who are interested in company formation in Czech Republic must know that the new Act is available for the investment funds operating on this market, as well as for other types of investment entities which manage the assets of such funds.
At the same time, regulations available for the investment field in Czech Republic can also be provided by the Czech National Bank, which is the main regulator of such vehicles. Our team of company formation agents in Czech Republic can offer assistance for the registration procedure, which falls under the rules of the Czech National Bank.
Register with the Czech National Bank
According to the new Act, which implements the AIMF regulations, alternative investment fund managers are required to register with the Czech National Bank (CNB). Moreover, all persons who are interested in investing capital in Czech Republic must notify CNB on this matter.
CNB will issue an approval in specific situations, in which, for example, the investment project exceeds the values prescribed under the applicable legislation.
Legal forms for Czech investment funds
In 2013, the Czech government enacted new laws regulating the investment funds, in order to align with the directives prescribed by the EU. At the level of 2013, three new forms of investment funds became available in Czech Republic, as follows: the joint stock company with variable capital (SICAV), the limited partnership and the trust fund.
In addition, investors can also register the following structures: mutual funds, joint stock companies, limited liability companies and European companies. Businessmen who are interested in company formation in Czech Republic should also know that the fund legislation available here provides another type of vehicle – the Qualified Investor Fund (QIF). Our team of agents in company formation in Czech Republic can offer more details on this structure.
What are the characteristics of Czech QIFs?
The QIF was introduced in 2007 and it is addressed to qualified investors – who can be represented by legal entities operating in the financial field (banks, credit institutions) or by natural persons who have an extensive knowledge in the investment sector. The QIFs are considered to be alternative investment funds which benefit from a lower level of regulation, compared to other types of funds.
Foreign and local investors who want to register a Czech QIF will start the procedure for company formation in the Czech Republic by incorporating a joint stock company. The QIF can also take the form of a mutual fund, but regardless of the entity that will be selected for registration, investors must invest a capital of CZK 50 million (representing EUR 2 million).
It is necessary to know that the capital does not have to be deposited upon the incorporation of the fund, as the Czech law stipulates that its founders can raise this capital in a period of one year since the moment in which the fund received the license to operate in the Czech Republic.
An important characteristic of this type of fund is that it must have a diversified portfolio of investments. Thus, the Czech National Bank requires Czech QIFs to invest in at least two types of assets. For instance, the legislation stipulates that investments in a single asset should have a value of less than 50% of the funds’ total investments.
As presented earlier in this article, the investors of the Czech QIFs can be both natural persons and legal entities. The basic investment criteria is that each investor must add a capital of at least CZK 1 million in the fund, while the law requires this type of fund to have a maximum number of 100 qualified investors. Our team of specialists in Czech company formation can provide further information on other basic requirements for investing in a QIF; for example, this type of fund can be formed by minimum two investors.
What is the value of the financial assets held by Czech funds?
The updated situation of the investment funds operating in the Czech Republic is gathered by the Czech Central Bank. This data is then sent to the European Central Bank, which stores the information on the investment funds operating the European Union (EU), as well as on other financial institutions. The latest data, referring to the year 2018 and 2019, is presented in the list below:
- • most of the financial assets of the Czech funds were held as equity and investment fund shares, which had a total value of CZK 185.162 million in 2018;
- • debt securities accounted for CZK 109.578 million, while currency and deposits had a value of CZK 60.357 million;
- • loans accounted for CZK 46.424 million and other types of accounts receivable had a value of CZK 13.243 million;
- • in the 4th quarter of 2019, the investment fund shares accounted for EUR 4.6 billion (CZK 125 billion);
- • this represented an increase compared to the rest of the year, as in the 1st quarter, the value of the shares stood at EUR 4.18 billion (CZK 114 billion), in the 2nd quarter it accounted for EUR 4.26 billion (CZK 116 billion) and in the 3rd quarter it had a value of EUR 4.30 billion (CZK 117 billion).
Register an investment fund in Czech Republic
The company registration in Czech Republic related to an investment fund falls under the regulations of the Czech National Bank, which is the main regulator of such vehicles. In order to open an investment fund in Czech Republic, the investors will need a capital of minimum EUR 1.25 million, but this requirement can also vary based on the type of fund registered in this country.
For example, collective investment funds in the Czech Republic can take the form of UCITS (undertakings for collective investments in transferable securities) and non-UCITS. The UCITS in the Czech Republic can be incorporated as an investment company with variable capital (SICAV) or as a common fund (FCP), which represents an open-ended type of fund. Some of the basic characteristics of the UCITS funds, which can be detailed by our team of consultants in company registration in Czech Republic, are the following:
- • this type of fund needs a capital of EUR 1.25 million, which must be raised in a period of 6 months since the incorporation of the entity;
- • the initial capital requirement differs based on the chosen management structure of the fund;
- • thus, for a fund that appointed a management company, the initial capital is of EUR 125,000;
- • in the case of a fund that has set up an internal management structure, the initial capital requirement is of EUR 300,000;
- • the fund can be used for investments in transferable securities, for bank deposits or for investments in movable or immovable property.
What are the procedures of the dissolution of a Czech investment fund?
Just like in the case of commercial entities, investment funds can enter into the dissolution procedure. Regardless of the fund type that was selected for company formation in Czech Republic, the procedure involves the participation of the local courts and the Czech National Bank. In the case of investment funds that have a legal personality, the Czech National Bank will appoint a liquidator, who must be registered with the institution.
In the case of a fund without a legal personality, the procedure will differ. This will be the case of the Czech FCP, which does not represent a legal entity. The administrator of the fund will be in charge with the redemption of shares, while the manager will sell the fund’s assets in order to pay the liabilities.
Taxation of Czech investment funds
Under the new regulations of the Income Tax Act, investment funds set up as closed-ended vehicles are imposed with a tax applicable at the rate of 19%.
Up until this new Act, the investment funds in Czech Republic were taxed at the same rate, but investors interested in company formation in Czech Republic should be aware that, starting with 2015, such vehicles are taxed in accordance with the class of funds in which the investment vehicle is included.
Foreign investors interested in opening an investment fund in one of the main cities of the country are invited to contact our consultants in company formation in Czech Republic.
Meet us in Brno
Call us at +420 721 565 868 to set up an appointment with our specialists in company formation in Brno. Alternatively you can incorporate your company without traveling to Czech Republic.
As an CorpexLab client, you will benefit from the joint expertize of local experts and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Czech Republic.
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