Offshore hedge fund - where is better to register?
How to create a hedge fund properly, where is better to register a hedge fund, a hedge fund in Europe or a hedge fund in offshore - the answers to all of these and other questions can be found on this page.
Creating your own investment fund is a very attractive opportunity for business development on an international scale.
For decades, hedge funds have been the best tool for generating high returns.
If you decided to open your investment fund, the first thing we recommend to do, is to objectively assess your capabilities.
Despite the fact that the best jurisdictions for registering investment funds (hedge funds) abroad are the offshore zones (the Cayman Islands, the Bahamas, the British Virgin Islands), the activities of funds even in offshore zones are subject to a strict state regulation and control.
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Below on this page you will find links to articles describing the terms of registration a hedge fund in each of these jurisdictions.
You might be interested in these articles (available in russian):
To start with, let’s specify what a “hedge fund” is.
Hedge Fund - is an actively managed investment pool, subject to regulation and administered by a professional manager in order to obtain an absolute income, which is distinguished by a unique structure of remuneration for asset management.
The prefix "hedge" is translated from the original language like "insurance".
In the classic sense, "Hedging" is one of the main elements of hedge funds and their most important function, which implies protection from the risks of asset losses, using various investment strategies and financial instruments.
Thus, the fund bases its activities through a general coverage of financial risks.
All that is necessary for the establishment of the fund and the receipt of income are investments that will be quite cost-effective with a preferential offshore tax regime and competent management.
Is it better to create a Hedge fund in Europe or in offshore zone?
When creating a hedge fund in Europe, you immediately encounter high tax rates, strict regulator requirements, and high requirements to the authorized capital (1,000,000 euros).
That's why most of the founders of investment funds prefer financial centers such as the Cayman Islands, British Virgin Islands or a fund in the Bahamas, where financial losses are minimal, and the terms of establishment are loyal.
Offshore business centers are attractive for foreign investments due to the provision of special tax rates and other types of benefits, reducing or entirely excluding the taxation of income of foreign companies established at the location of the offshore center.
In which jurisdictions is it better to establish a hedge fund?
As it was mentioned above, the most comfortable offshore jurisdictions for creating hedge funds are the Cayman Islands, the Bahamas and the British Virgin Islands.
Other offshore zones where you can register hedge funds with a minimum or zero tax rate are Jersey, Belize, Bermuda, Uruguay.
Below we give a few characteristics for the funds of the group: the Cayman Islands, the Bahamas and the British Virgin Islands.
Funds are divided into private, professional and public in the British Virgin Islands, in the Cayman Islands - private and regulated, in Bermuda - for standard, institutional and recognized schemes, and in Mauritius there is no division of investment companies into categories.
The BVI offers three types of mutual funds: a private fund, a professional fund and a public fund. Unlike the Cayman Islands, the BVI does not recognize its funds as "exempted". Up to fifty investors are allowed here.
The British Virgin Islands offer one of the best, most respected financial sectors, not only in the Caribbean, but throughout the world. Since the acceptance of the Business Companies Act in 2004, over half a million firms have been registered on the island. The British Virgin Islands have a good reputation in the financial community and a place in the "white list" of OECD countries. BVI is a great alternative for registration a fund.
Different countries have different requirements for finding the fund at the place of its registration. So, for example, the laws of the Virgin Islands and the Cayman Islands allow the transfer the fund activities outside the country. However, in Mauritius the foundation must necessarily lead the main work in same place: it is necessary to appoint local directors, administrators, custodians, auditors and other fund members.
The Cayman Islands offers four types of mutual funds: an Exempted fund, a registered fund, an Administered fund and a licensed fund. In the Cayman Islands, there can not be more than fifteen investors in tax-exempt funds. The Cayman Islands has its stock exchanges, and there are no stock exchanges in the BVI.
A license for a hedge-fund
An investment fund is a regulated and licensed structure. In reality, in most offshore zones, it is not the activities of the fund itself, but its manager that is regulated. As a rule, the fund manager must obtain a license or other authorization for his activities in the country of registration of the fund. At the same time, the manager is responsible to investors for the proper investment of the fund's resources, therefore, he must carry out personal control over its investment activities.
It should be taken into account that obtaining a license for an investment fund is not a formal procedure, it is a complex and time-consuming process that will require careful preparation of documents. When creating an investment fund, a nominal service is unacceptable. The fund manager must have the appropriate education, must have the qualifications, experience and have all the documents and recommendations confirming it.
Even in offshore zones, it is almost impossible to obtain a license for a person who is not an active fund management professional.
When creating its management company, the licensing authority has similar requirements for the qualifications and reputation of its officers. To obtain a license, it is also necessary to confirm the material condition and the origin of the funds. Thus, one of the most important issues that must be solved when creating a fund is a management issue.
Based on the list of jurisdictions analyzed above, it can be concluded that the Caribbean is the most popular and attractive area for registering hedge funds in offshore zones.
However, customer requirements are always individual. Therefore, only after communicating with the client, we can recommend jurisdiction for the fund establishing.
If you are interested in establishing a fund, we can offer you our professional services for incorporation of a local company and obtaining a fund license.
For over five years SBSB has been consulting our clients, CIS residents, in the field of corporate law, international tax planning, finance, international licensing and integrated business support in more than 40 countries.
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