Summary
- A "Collective Investment Fund" is any arrangement in which participants pool contributions, lack day-to-day control, and have the property managed as a whole by or for a Fund Manager (Financial Services Act 2025, s. 106).
- Three fund roles need a GFSO licence: Managing a Collective Investment Fund (Schedule 1, para. 59), Acting as the Administrator (para. 60) and Acting as the Trustee of an Investment Trust (para. 61).
- Domestic Public Funds are registered with GFSO (s. 107); Exempt and Qualified Investor Funds are notified at least 14 days before the first offer of Units (s. 112). The tiers are defined in the Fund Rulebook (FUNDS).
- An Investment Trust needs a trust deed between a licensed manager and an independent licensed trustee (ss. 113–114); Unitholders have limited liability (s. 116).
- Vehicles: a GMC company, a limited partnership, an LLP or an investment trust.
- Income Tax Act 2025 ss. 13O, 13OA and 13U fund exemptions carry a 31 December 2029 approval cut-off.
GMC regulates funds through a single regulator, the Gelephu Financial Services Office (GFSO), and the Gelephu Mindfulness City Authority lists "Finance and Digital Assets" among its eight priority industries. All "$" amounts in GMC law are United States dollars (Companies Act 2025, s. 4A). This article explains the legal building blocks; for the licensing process generally, see our guide to the GFSO application process.
What is a Collective Investment Fund?
Section 106 of the Financial Services Act 2025 (the Act) sets a functional test. A Collective Investment Fund (a "Fund") is "any arrangements with respect to property of any description, including money", whose purpose or effect is to enable participants "to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property" (s. 106(1)). Three further conditions apply:
- the participants ("Unitholders") "do not have day-to-day control over the management of the property", even if they may be consulted or give directions (s. 106(2));
- the contributions and the profits or income are pooled (s. 106(3)(a)); and
- the property is "managed as a whole by or on behalf of the Fund Manager" (s. 106(3)(b)).
Where pooling occurs in separate parts, the arrangement is not a single Fund unless Unitholders can exchange rights in one part for rights in another (s. 106(4)); "Umbrella Fund" and "Sub-Fund" are defined in the Rules and s. 258. GFSO may by Rules exclude specified arrangements (s. 106(5)). Because the test is functional, a token-holder pool, a club deal or a pooled managed account should be tested against s. 106 before launch.
The three licensed roles
Chapter 11 of Schedule 1 specifies three Regulated Activities, each caught only when carried on "by way of business" (para. 3) and requiring a Financial Services Licence (s. 16).
| Activity | Paragraph | What it covers |
|---|---|---|
| Managing a Collective Investment Fund | 59 | Being legally accountable to Unitholders for management of Fund property under the Fund's Constitution, or establishing, managing, operating or winding up a Fund (para. 59(2)) |
| Acting as the Administrator of a Collective Investment Fund | 60 | Any of: processing subscriptions, redemptions and transfers; valuation and NAV calculation; maintaining the Unitholder register; anti-money laundering functions; transaction monitoring and reconciliation; banking, cash, treasury and FX administration; producing financial statements (other than as auditor); communicating with participants, the manager, prime brokers and GFSO (para. 60(2)) |
| Acting as the Trustee of an Investment Trust | 61 | Holding the assets of a Fund on trust for Unitholders where the Fund is an Investment Trust (para. 61(2)) |
Two points deserve emphasis. Para. 59(2)(b) treats a person who "establishes" a Fund as managing it, so the sponsor is inside the perimeter from day one. And para. 60 is a menu: performing any one listed service by way of business is fund administration, including outsourced AML or NAV work. The exclusions are narrow: an agent, employee or delegate of the trustee is not itself the trustee (para. 62), and insolvency practitioners are excluded (para. 63). Safeguarding Fund Property is separately Providing Custody (para. 43(1)(b)).
Domestic and Foreign Funds
A "Domestic Fund" is established or domiciled in GMC. A "Foreign Fund" is domiciled elsewhere but managed by a Fund Manager that is a Licensed Firm (s. 258). A GMC-licensed manager can therefore manage an offshore vehicle.
Public, Exempt and Qualified Investor Funds
Part 11 divides Domestic Funds into three tiers. The Act names them; the Fund Rulebook (FUNDS), listed as subsidiary legislation by GFSO and applied through Schedule B of the Application of Laws Act 2024, defines them. "Public Fund", "Exempt Fund" and "Qualified Investor Fund" each mean "the Fund of a description specified in Rules made by the Regulator" (s. 258).
Public Funds: registration
Every Domestic Fund that is a Public Fund, including each Sub-Fund, "shall be registered with the Regulator" (s. 107(1)). The Fund Manager applies, jointly with the Trustee for an Investment Trust (s. 107(3)). GFSO may require further information (s. 108), refuse (s. 109) or register with effect from a specified date (s. 110). Registration can be withdrawn for false information, contravention, a manager or trustee no longer fit and proper, or an outsider exercising "significant influence" over the Fund (s. 111(1)).
Exempt Funds and Qualified Investor Funds: notification
The Fund Manager of an Exempt Fund or Qualified Investor Fund must notify GFSO "at least 14 days prior to the initial Offer to issue Units", and for a closed-ended Fund before any subsequent offer (s. 112(1)). If a Fund can no longer meet its tier's conditions, the manager must, as soon as practicable, move it up a tier or apply to wind it up (s. 112(3)). Investor eligibility and minimum subscription conditions are in FUNDS, not the Act; do not assume figures from other jurisdictions apply.
Offers of Units
No person may make an Offer of a Unit in GMC except as provided in the Act and Rules (s. 106A(1)). GFSO may issue a stop order where an offer would contravene the Act or where it is "in the interests of GMC" (s. 106B(1)), subject to notice and representations (s. 106B(4)–(7)). The Part 6 prospectus regime does not apply to an Offer of a Unit (s. 57(1)) unless Units are to be admitted to trading on a Licensed Exchange (s. 57(2)). Marketing also engages the financial promotion restriction (s. 18; see our guide to financial promotions in GMC).
Investment Trusts
Chapter 4 of Part 11 creates a statutory trust vehicle. A person "shall not enter into an agreement to create a trust for collective investment purposes" unless it complies with s. 114 (s. 113(1)). An Investment Trust is created by a Trust Deed between:
- a Licensed Firm with a Financial Services Licence to Manage a Collective Investment Fund, or a firm licensed to provide fund management by a Non-GMC Regulator in a "Recognised Jurisdiction"; and
- a Licensed Firm with a Financial Services Licence to Act as the Trustee of an Investment Trust (s. 114(1)).
The Trustee must be independent of the Fund Manager. Independence fails if either holds shares or voting rights in the other, they share a holding company or ultimate holding company, they share directors, they share individuals performing Controlled Functions, or they have had "professional or material business dealings" in the previous two years other than as manager and trustee of other Funds (s. 114(2)). The Trust Deed must meet the FUNDS constitution requirements, state whether the Trustee provides the oversight function, and confer the necessary powers (s. 114(4)). It binds Unitholders as if they were parties (s. 115(1)); inconsistent provisions are void (s. 115(2)).
Unitholders are not liable for the trust's debts beyond any amount unpaid on their Units (s. 116). GFSO may by Rules designate Recognised Jurisdictions whose fund laws are "sufficiently equivalent" and must publish the list (s. 118).
Choosing the vehicle
| Vehicle | Governing law | Notes |
|---|---|---|
| Company | Companies Act 2025 | At least one director ordinarily resident in GMC (s. 145(1)); no par value shares (s. 62A). Income Tax Act s. 13O is designed for this form |
| Limited partnership | Limited Partnerships Act 2026 | General partner with unlimited liability, limited partners capped at their contribution (s. 3); a limited partner who takes part in management loses protection, subject to First Schedule safe harbours (s. 6). An "Investment Partnership" is a limited partnership "established for the sole purpose of collective investment" (Financial Services Act 2025, s. 258) |
| LLP | Limited Liability Partnerships Act 2026 | Body corporate (s. 4); minimum two partners (s. 28); one GMC-resident manager (s. 29) |
| Investment trust | Financial Services Act 2025, ss. 113–116 | Licensed, independent manager and trustee; limited Unitholder liability |
The choice is usually driven by investor familiarity, the investor base's tax profile, and whether the manager wants a Domestic or Foreign Fund.
Licensing the manager, administrator and trustee
The GEN Rulebook adds practical conditions:
- An applicant for Acting as the Trustee of an Investment Trust must be a Body Corporate (GEN 5.2.2(4)). Other applicants may be a Body Corporate or a Partnership (GEN 5.2.2(1)).
- A GMC-incorporated Licensed Firm must have its head office and registered office in GMC (GEN 4.5.1(1)).
- Every Licensed Firm must appoint a Senior Executive Officer, Compliance Officer and Money Laundering Reporting Officer as Approved Persons (GEN 5.5.1(1)); a Fund Manager of a Venture Capital Fund need not appoint a Finance Officer (GEN 5.5.1(3)).
- A fund administrator must publish, in a register at its premises or on its website, details of each employee who delivers Regulated Activities to clients (GEN 3.3.2(3)–(4)).
Capital requirements are in the Prudential Rulebook (PRU) and set by GFSO; the Act and GEN do not state figures.
Tax: the fund exemptions
The Income Tax Act 2025 contains three fund exemptions that turn on management by a "fund manager", defined as a company licensed for fund management under GMC's securities laws, or exempted from licensing (s. 2).
- s. 13O exempts prescribed income of an approved company "incorporated and resident in GMC" arising from funds managed in GMC by a fund manager, subject to prescribed conditions. Owners whose stake exceeds a prescribed percentage face a penalty computed at the s. 43(1)(a) rate (s. 13O(3)), with a three-month cure period (s. 13O(4)). "No approval may be granted under subsection (1) after 31 December 2029" (s. 13O(2)).
- s. 13OA gives the same treatment to partners of an approved limited partnership registered under GMC's limited partnership law, with the same 31 December 2029 approval cut-off (s. 13OA(5)).
- s. 13U extends the exemption to an approved person, and to master funds, feeder funds and SPVs within approved master-feeder, master-feeder-SPV and master-SPV structures, including where the fund is a partnership, trust or non-legal-entity (s. 13U(1)); approvals may be granted only until 31 December 2029 (s. 13U(2)).
Outside these exemptions, a GMC fund company is taxed at 15% under s. 43(1)(a), subject to other exemptions such as s. 13W (gains from disposal of ordinary or preference shares); limited partnerships are dealt with in s. 36C. Non-citizen individuals benefit from the 0% rate on income derived to 31 December 2030 (s. 43(1)(ba)). See our guide to the s. 13O, 13OA and 13U fund exemptions.
Practical checklist
- Test the proposed arrangement against s. 106; confirm it is a Fund and identify who "establishes" it (para. 59(2)(b)).
- Decide between a Domestic Fund and a Foreign Fund managed from GMC.
- Choose the vehicle: company, limited partnership, LLP or investment trust.
- Obtain the Fund Rulebook from GFSO and classify the Fund as Public, Exempt or Qualified Investor.
- Apply for the manager's licence for para. 59, adding custody (para. 43) or administration (para. 60) as needed, or appoint licensed third-party providers.
- For an investment trust, appoint an independent licensed trustee and settle the Trust Deed against s. 114 and FUNDS.
- Register a Public Fund (s. 107) or file the 14-day notification for an Exempt or Qualified Investor Fund (s. 112).
- Prepare offer documents that comply with s. 106A and s. 18.
- Model tax and prepare a s. 13O, 13OA or 13U application, bearing in mind the 31 December 2029 cut-off.
Frequently asked questions
Do I need a GMC licence to manage an offshore fund from GMC?
Yes, if you carry on the activity by way of business in GMC. Managing a Collective Investment Fund (Schedule 1, para. 59) is a Regulated Activity regardless of where the Fund is domiciled, and a Fund managed by a Licensed Firm from GMC is a "Foreign Fund" (s. 258).
Can the same group provide the manager and the trustee of an investment trust?
No. Section 114(2) requires the Trustee to be independent of the Fund Manager, and a common holding company, shared directors or shared Controlled Function holders all defeat independence.
What is the difference between registering and notifying a fund?
A Domestic Public Fund must be registered with GFSO before it can operate (s. 107). An Exempt Fund or Qualified Investor Fund is only notified, at least 14 days before the first offer of Units (s. 112). The conditions for each category are in the Fund Rulebook.
How long are the GMC fund tax exemptions available?
Sections 13O, 13OA and 13U of the Income Tax Act 2025 provide the exemptions, and approvals under them can be granted until 31 December 2029.
Key takeaways
- The s. 106 test is functional: pooling plus no day-to-day investor control plus management as a whole.
- Manager, administrator and trustee are each separately licensed roles under Schedule 1, paras. 59–61.
- Public Funds are registered; Exempt and Qualified Investor Funds are notified 14 days ahead. The tiers are defined in FUNDS.
- Investment trusts require a licensed manager and an independent licensed trustee (s. 114).
- The fund tax exemptions in ss. 13O, 13OA and 13U carry a 31 December 2029 approval deadline.
This article is general information about the law of the Gelephu Mindfulness City Special Administrative Region as at the date above. It is not legal advice and does not create a lawyer–client relationship.
You may contact Basnet Law at basnet@basnetgmc.com or office@basnetgmc.com for any legal queries related to GMC.
References
- Financial Services Act 2025, ss. 16, 18, 57, 106, 106A, 106B, 107–118, 258 (definitions of "Collective Investment Fund", "Domestic Fund", "Foreign Fund", "Fund Manager", "Investment Partnership", "Investment Trust", "Sub-Fund", "Trustee", "Umbrella Fund"); Schedule 1, paras. 3, 43, 59–63, 82
- GEN Rulebook 2026, Rules 3.3.2, 4.5.1, 5.2.2, 5.5.1
- Income Tax Act 2025, ss. 1(3), 2 ("fund manager"), 13O, 13OA, 13U, 13W, 36C, 43(1)(a), 43(1)(ba)
- Companies Act 2025, ss. 4A, 62A, 145
- Limited Partnerships Act 2026, ss. 3, 6; Limited Liability Partnerships Act 2026, ss. 4, 28, 29
- Application of Laws Act 2024, s. 5 and Schedule B (FUNDS)
