Hi I am trying to come woth reasons why you would set up a maneged money company in the USA as oppsoed to say The Cayman Islans? Obviously tax is a massive advantage here but there must be drawdowns or every one would do it. Can you share them? Thx
no-one nothing to ad? The world is not the U.S.A. What is the advantages and disadvantages of setting up onshore/offshore? Must be some or every hedge fund would be one or the other?
If as a person you set up a wholly owned company in Cayman Islands, you may be liable for personal income tax on all of the company's profits even though the company itself doesn't pay any tax. The same goes for wholly owned subsidiaries of US companies. Although large corpoarations may find work-arounds to keep their profits abroad untaxed, for madrately rich individuals and smaller companies it may be easier, safer, and actually cheaper to pay US tax in a low-tax state. It's a complex question and forum posts should not be relied apon in making a tax decision. However, if you want to find out more, serach the web for taxation of incubator hedge-funds.
http://www.hedgefundlawblog.com/start-a-hedge-fund-in-the-cayman-islands.html Mainly the upfront legal costs of setting up an offshore entity. In reality though, with both on-shore and off-shore you are running a pass-thru entity. All taxes get passed through to the limited partners... Have you looked into Delaware? It has an attractive structure and the costs are minimal (i.e. much less than going offshore). Just do a Delaware LP on your own, its much cheaper and you're really not gaining that much by going offshore unless you're a very large fund.
Well I am not seeking legal advice here guys what I AM simply trying to get my head around is say you wanted to set up a Hedge Fund/ or C.T.A. and you can either set one up in mainland USA or offshore in The Cayman Islands.... what would your choice be and why? Now I guess going offshore right away you have reduced your taxes......but are you thrn sacrificing instutional money to manage? I am not sure....But I guess there must be disadvantes or adavantages is paying mainland tax or every find would be offshore? Thanks
As long as the scale of legal fees and running costs is not an issue, you just create an onshore "wrapper" fund for US investors. Foreign investors would invest in the offshore fund and US investors would invest in the onshore "wrapper" fund.
Also remember, there is the actual fund and the fund management company. They don't have to be registered in the same jurisdiction. Further, fund management company may actually exist as a few entities. Normally, at least one of the entities is registered onshore so as to simplify employment paperwork, employee taxes etc.
OK Thx so are you saying US companies/citizens cannot invest in offshore funds? If you are going after institutional money do you have to be based in the U.S.A.? I see offshore Mutual Funds these days? I guess like you say you can have both entities? Thanks again ------------------------------------------------------------------------------------- As long as the scale of legal fees and running costs is not an issue, you just create an onshore "wrapper" fund for US investors.
us citizens CAN invest in offshore funds, but are discouraged by them due to the negative tax implications for the fund (i know of none that allow it). this is the purpose of the onshore feeder that lee mentioned. the us investor invests in the feeder, which then pools in the offshore fund. the onshore feeder is taxed domestically, and the offshore fund is not exposed to taxation. as lee also mentioned, the reason for the offshore fund is not to reduce taxes for yourself or for other us citizens (assuming you're a us citizen), as there are no tax advantages for us citizens with offshore funds. the reason for the offshore fund is to attract foreign investment. if a foreigner invests in a domestic fund they are open to taxation whereas with the offshore fund there is no tax for them. institutional money is going to be less interested in where you're located than as they are with your performance and how much money you've been able to raise. 100aum (and i've heard up to 500aum) with excellent scalability seems to be the minimum nowadays needed to start peaking interest.
I couldn't answer the question better than propseeker did. One thing to add is there are similar tax implications if the fund management company has offices inside and outside the US.