Open an Offshore Fund
Updated on Thursday 14th February 2019
Rate this article 5 reviewsbased on
An offshore fund represents a type of investment structure that is incorporated in a jurisdiction with a low level of government interference; typically, this type of fund is registered in an offshore financial center that is seen as a tax haven, due to a set of tax advantages offered to those choosing to invest in the respective location.
One of the best locations for starting an offshore fund is the Cayman Islands, where most of the world’s offshore funds are incorporated. Those interested in opening a hedge fund startup in the Cayman Islands should know that the country attracted approximately 75% of the offshore hedge funds registered at a global level. An offshore fund can be registered as a mutual fund, a hedge fund, or another type of vehicle that is prescribed by the legislation of the offshore jurisdiction.
What is the legislation for funds in the Cayman Islands?
The main rule of law under which investment funds can function in the Cayman Islands is the Mutual Funds Law. Businessmen interested in registering a hedge fund startup in the Cayman Islands should consider that this type of vehicle falls under the scope of the Mutual Funds Law as well, as in this jurisdiction, the vehicle is considered a mutual fund. The Cayman Islands mutual funds are divided as follows:
- exempt mutual fund – this type of fund may not comply with the requirements of the Mutual Funds Law, provided that certain conditions are met (for example, regarding the number of investors);
- registered mutual fund – it represents the most common way to start an investment vehicle in the Cayman Islands and in order to register the vehicle, each investor must contribute to the fund’s capital with at least $100,000;
- administered mutual fund – it is not necessary to subscribe a minimum capital, but the fund must have its place of administration registered in the Cayman Islands and it also needs to obtain a license from the Cayman Islands Monetary Authority;
- licensed mutual fund – it requires the issuance of a license and it must also have its place of administration in this jurisdiction.
What are the main rules of law for funds in Belize?
Another attractive jurisdiction for investments purposes is Belize, a jurisdiction which is seen as a top offshore center. Offshore funds in Belize are set up as mutual funds and they are incorporated following the provisions prescribed under the Belize Mutual Funds Act 2000. Those who are interested in how to start an investment fund that falls under the scope of this law should know that funds can be recognized under this legislation even if they are already registered in another country.
This also applies to the fund’s managers and fund’s administrators who are working from another country, but it can also apply to other related professionals. When opening an offshore fund in Belize, such vehicles will be regulated by the Belize International Financial Services Commission.
The Belize Mutual Funds Act 2000 prescribes three main categories of funds, which can be registered as public funds, private funds or professional funds. In the case of a public fund, the investors are allowed to offer the fund’s shares to the general public, but it is necessary to know that the vehicle has the highest level of regulation. Contrary to this, a private fund is defined by the fact that its investors can’t offer the fund’s shares to the general public, and at the same time, the vehicle must have a maximum of 50 investors.
According to the legislation available in Belize, the investors can enjoy a very favorable tax regime, in the sense that they can benefit from numerous tax exemptions. For example, the fund can be exempted from the payment of the tax on capital gains, on dividends or profits. The fund’s managers, administrators or advisors can also be exempted from the payment of several taxes which are typically imposed on the fees they request. The tax exemption can also be applied to the profits obtained by the fund’s administrators.
What types of funds are available in Seychelles?
Offshore funds that can be set up in Seychelles are divided based on the same criteria that are applicable in Belize, meaning that they can be registered as private funds, professional funds and public funds. These types of vehicles need to be licensed. However, foreign investors who want to know how to start a fund in Seychelles may also register exempt foreign funds, which are defined as vehicles that have already been licensed in a recognized jurisdiction.
Thus, the fund can be exempt from obtaining a license from the Financial Services Authority, but this can apply in specific situations, which can be detailed by our team of partners in Seychelles. For more information concerning the registration of a fund in one of these top offshore countries, as well as for advice on the legislation regulating the incorporation of an offshore fund in other top jurisdictions, we invite you to address to our team of affiliates.