Eternity Law International — News — Investment fund in Estonia

Investment fund in Estonia

Published:
August 5, 2024

Estonia, along with Luxembourg and the UK, is one of the most favorable jurisdictions for creating investment funds. In 2016, a new version of the Investment Funds Act came into force, which simplified the attraction of private collective investments through small alternative investment funds (AIFs). Investing capital in the commercial development of an investment fund Estonia is considered by many entrepreneurs as a profitable and promising option for a profitable business.

We are ready to become your reliable partner in matters of creating and managing an investment fund in Estonia. Contact us and we will provide qualified assistance in the field of financial law in Estonia and the EU, answer all your questions and help in organizing your activities. We offer a full range of services for the regulation and management of investment funds, as well as in obtaining an investment fund license, from preliminary consultations and assistance in obtaining the necessary permits, to full support of the fund and preparation of financial statements.

Estonia fund setup: possible projects and directions for investment funds

  1. Venture fund: such Estonian investment funds are focused on innovative enterprises and start-ups. Venture funds offer significant returns with high risks, and their investment policy is aimed at ensuring that profits from successful investments cover losses.
  2. Cryptocurrency fund: an investment fund whose main investment object is cryptocurrencies (for example, BTC, ETH, XRP), tokens and other virtual assets. The cryptocurrency fund may also invest in blockchain projects, initial coin offerings (ICOs), staking, and other opportunities offered by the blockchain technology industry.
  3. Real estate fund: a fund specializing in investments in liquid real estate and development projects. The goals of the fund can be both short-term and long-term, aimed at effectively managing real estate and receiving regular dividends.
  4. Crowdfunding: A small alternative fund can be used to transparently and efficiently raise collective funds and investments in crowdfunding and crowdinvesting aimed at financing a pre-determined project, start-up or other idea, with the goal of generating a profit from such investment.

Benefits of Estonia investment funds

  1. Ease of creation. The small alternative fund registration process takes up to 60 days, making it quick and simple.
  2. Transparent management. The fund is managed by a management company in accordance with a predetermined investment policy and the fund’s memorandum of association.
  3. Extensive possibilities. The fund manager can control assets of up to €500 million in long-term, non-leveraged investments. For short-term investments or use of financial leverage, this limit is 100 million euros.
  4. Diverse investment portfolio. The fund provides collective investment opportunities in venture capital, stocks, cryptocurrencies, derivatives, money markets, precious metals and more.
  5. Limited liability. Investors’ liability is limited to the amount of their investment, which reduces financial risks.
  6. Confidentiality. Information about the list of investors and the size of their investments remains non-public.
  7. Low costs. In terms of further Estonia fund management, it is worth noting that registering and servicing a small alternative fund in Estonia is significantly cheaper compared to jurisdictions such as Luxembourg or the UK.

Estonia investment regulations: fund structure

The investment fund operates through the interaction of the fund manager (Fund Manager) and the AIF itself, registered in the Commercial Register as a separate legal entity – a limited fund (Usaldusfond, Limited Partnership Fund or LPF).

Typically, the fund manager is a company specially created for this purpose. Its main task is to manage investors’ assets to generate profits in accordance with the fund’s investment policy. The manager can control several funds, the total assets of which do not exceed 100 million euros (for short-term investments with leverage) or 500 million euros (for long-term investments without leverage). The manager receives a management fee and a success fee if the fund achieves certain results.

In terms of Estonia fund administration, main responsibilities of a fund manager include next-mentioned.

  1. Development of investment policy.
  2. Making investment decisions.
  3. Investment and asset placement.
  4. Representing the interests of the fund before third parties.
  5. Attracting new investors.
  6. Organization of the issue of fund shares.
  7. Organization of redemption of fund shares.
  8. Distribution of income between unit holders.
  9. Maintaining accounting and financial reporting.
  10. Interaction with regulators and government agencies.
  11. Organization of management activities of the head of a small fund.

LLC (Osaühing, Limited Liability Company) is suitable for managing a small fund. The company must have at least two board members (directors), who may be non-residents of Estonia. There are no additional requirements for the structure of a legal entity or mandatory contributions of reserve and authorized capital.

To register an investment fund in Estonia quickly and without unnecessary difficulties, we recommend contacting specialists. Our team has many years of experience in commercial and financial law. We provide a full range of services for registration, licensing and support of small alternative funds. We take into account the unique needs of each client and offer solutions tailored to your goals, and we guarantee high quality of services provided and full compliance with current legislation.

If you are interested in individual advice on setting up an investment fund in Estonia, please contact us. We will be happy to answer all your questions and provide quality assistance. We also have an extensive list of ready-made options, in particular, we can offer an alternative investment fund for sale in the Czech Republic and much more.

Starting a fund in Estonia: registration stages

In order to implement Estonia fund registration and to create a legally correct structure for such a fund and begin its activities, it is necessary to go through several stages of registration and licensing.

  1. Registration of a fund management company. First, you need to register a legal entity that will perform the functions of a management company (Fund Manager). This can be done either in person or remotely using a power of attorney or e-Residency card. The registration process takes up to five business days.
  2. Obtaining an AML license for the management company. The management company is required to obtain an AML license of a non-bank financial institution from the Financial Intelligence Unit (FIU). To do this, you need to prepare internal procedures to combat money laundering and terrorist financing (AML policy), including precautionary measures and KYC in relation to investors. Review of an application for an AML license takes up to two months.
  3. Obtaining permission to register a fund. To register a fund as a separate legal entity, you must obtain permission from the Financial Supervisory Authority (FSA). With the application for permission, it is necessary to provide a legal analysis of the activities of the AIF in accordance with the requirements of the European Securities and Markets Authority (ESMA) and a package of fund documentation, including constituent documents, articles of association, information about the management company, the fund’s memorandum of association, information about the investment policy, planned investments, risks and other mandatory information. Review of an application for AIF registration takes about two months and can take place in parallel with the process of obtaining an AML license.

Estonia investment fund taxation

Any income received from the activities of such an organization is taxed at a rate of 25%.

Thus, Estonia offers excellent conditions for creating and running an investment fund due to ease of registration, transparent management, wide investment opportunities, limited liability of investors, confidentiality and low costs. We provide comprehensive support at all stages of registration and licensing of your investment fund in Estonia and other countries, providing legal support and development of the necessary documents for the successful start of your investment activity. We also provide comprehensive support to our clients when establishing an investment fund in SVG, Portugal, Mauritius and other countries. Contact us today.

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