Taxation:
You can consider setting up an offshore fund if you manage money for either foreign and/or US tax exempt individuals and businesses. But don't consider offshore funds if you go offshore to avoid US taxation.
The consequences of tax to an offshore hedge fund are substantial. They generally engage in investment strategies in order to profit from capital appreciation and daily swings in the price of securities, stocks or commodities. These gains are generally characterized as gains from the sale of capital assets.
Offshore hedge funds are not taxed on
1. Interest from US bank deposits or interest entitled to the portfolio interest exception
2. Capital gains so long as the gains do not arise from the sale or exchange of a direct or indirect interest in real property located in the US.
Dealer Safe Harbor
An offshore hedge fund may trade in US stocks, securities and commodities (for its own account or for customers), whether or not a dealer in stocks and securities board. This can be done through a resident broker, custodian, commission agent or other independent agent provided that it does not maintain an office within the US through which or by the direction of which the transactions in securities, commodities or stocks are effected.
Forming an Offshore fund
The correct structuring of an offshore hedge fund is of critical importance and is a major determining factor in its overall success. There are 6 major issues to be addressed.
1. Tax Issues
2. Regulatory Matters
3. Day-to-Day business management
4. Investment Strategies
5. Marketing
6. Back Office Operations
These areas are closely related and addressing them prior to creating offshore hedge fund eliminates problems later .The benefits of investing in a fund of hedge funds is improved risk adjusted investment returns in the form of
1. Acceptable levels of volatility
2.Capital preservation
3. Portfolio diversification
4. Investing in a pool of top international investment managers through a single fund.
As an added advantage, the timing of entry and exit is significantly diminished, as the volatility of many hedge funds is much lower than equivalent traditional investment products.
For more details please visit www.wealthcapfund.com
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