In April 2022, the UK introduced the Qualifying Asset Holding Company (“QAHC”) regime. The regime is intended to entice investment funds, and certain other investors, to establish their holding structures in the UK as opposed to, for example, Luxembourg or Ireland. To this end, a range of tax reliefs are available to companies that qualify for and elect into the regime, such as no withholding tax on interest paid by a QAHC, the ability to use profit participating instruments to offset returns on debt investments and a blanket UK corporation tax exemption for gains on the sale of (most) shares. QAHCs can also be useful, in particular, for funds whose managers are based in the UK who may have difficulty in establishing or demonstrating sufficient substance in an overseas holding company, which may result in issues with local substance requirements in underlying investment jurisdictions or the proposed Anti-Tax Avoidance Directive III, if it is enacted.
As part of the implementation of a fund structure involving one or more QAHCs, funds should consider whether any FCA or other regulatory registrations are required. If the QAHC is originating loans, it may have to register with the FCA for anti-money laundering and combating the financing of terrorism purposes as an ‘Annex 1 financial institution’ (an “AML Registration”). This may be relevant, for example, where a QAHC is originating loans as part of a credit fund structure. In contrast to a full FCA authorisation (which is required where a firm wishes to carry out a regulated activity by way of business), the AML Registration process is relatively cheap and light touch and requires the QAHC to provide, for example, information on turnover and relevant activities. However, it is worth noting that in circumstances where this registration is required, failure to register could result in fines or penalties for the non-compliant firm.
The FCA is required to make an assessment on such a registration within 45 calendar days of receiving the application. Whilst it may not be a particularly burdensome compliance obligation (firms should already have anti-money laundering processes in place in any event), managers should ensure they have considered whether such registration is required for any QAHC in their structure to avoid action being taken by the FCA. Information provided to the FCA as part of this type of application is kept confidential.
For further information on the UK and EU regulatory requirements that may be relevant to QAHCs, or on QAHCs more generally, please contact one of the lawyers listed below.