Consumers! While waiting for your big reward, you need to pay the bills, right? Often that means serving drinks or flipping hamburgers. We thing you should set your sights a little higher: start an offshore hedge fund!
It’s not as nutty as it sounds. You should have a decent understanding of trading and markets, but the process of launching an offshore hedge fund can be assisted by websites that are there to help people like you.
Offshore hedge funds offer a number of tax advantages for investors, and fund managers frequently set up U.S. and offshore business entities within the same fund. U.S. hedge funds are often Delaware-based LLPs and LLCs that must pay U.S. income tax. However, if your fund has non-U.S. investors, you can shield them from U.S. taxation by placing them into an offshore business unit incorporated in a tax-free jurisdiction. Locations like the Cayman Islands are very popular for this reason.
If you are managing money for onshore and offshore investors, you most definitely want to avoid keeping two separate portfolios. It’s arduous to do and involves extra effort. It’s much simpler to set up a master-feeder structure. In this type of structure, three separate entities are established, creating two funds, one U.S. and one offshore, which feed investments to a master fund where all the trading activity takes place. Foreign investors participate in the offshore feeder fund and thereby avoid U.S. taxes.
The master fund controls all of the investment decisions and consolidates trades for the benefit of the feeder funds. The offshore feeder can defer fees, an additional feature. The offshore fund is managed to avoid taxable unrelated business income, making it attractive to tax-exempt U.S. investors. There is nothing wrong or even questionable about offshore feeder funds – they carefully obey IRS regulations and in no way withhold lawful taxes. You simply take advantage of the fact that you are not domiciled in the U.S., so why should you pay taxes there?
An offshore feeder fund allows investors to legally avoid the 30 percent withholding tax on dividends, rents, royalties and interest that is required of foreign investors in a U.S. hedge fund. You can even establish your own foreign bank and utilize it to offer and administer feeder funds.
Getting rewards requires patience and a little luck. Running a hedge fund is requires skill and a little assistance. Maybe you are the sort of person who would excel at both.