Offshore and Mutual Funds

Filed under: offshore

Before starting this article about Offshore and Mutual Funds, let’s find out what are mutual funds and which are the benefits of these. So, what really are mutual funds and which is the difference between them and a tax-free?

A mutual fund that is based in an offshore jurisdiction, which is generally considered to be outside the United States. The term is often used, perhaps incorrectly, to describe a fund that is not in a high-tax country.
Well, the explanation for this is quite simple.  Just like some jurisdictions permit interest from bank accounts to be tax exempt, the same is true for mutual funds.  Some of the more popular offshore mutual fund jurisdictions, such as the Cayman Islands, Bahamas, Bermuda, Channel Islands or the Isle of Man permit mutual funds to be exempt from local taxation as long as the investors are not residents of these locations. Mutual fund companies use this to their advantage.  All of the well-known American mutual fund companies mentioned earlier have their funds registered and based in one of these locations. As a result, there is no tax on capital gains or dividends for the shareholder.

Now continuing with the benefits, for an investment professional, a mutual fund is a vehicle that enables more efficient use of existing research and investment expertise and resources. As an additional product to market to one’s client base, the properly structured offshore fund offers a number of features that distinguish it from a traditional mutual fund:

• A lower level of regulation makes it easier to establish and administer the funds. Consequently, formation and operating costs are significantly reduced. Lower costs means funds can be offered at zero or low load and with competitive management fees from the investor’s point of view. Furthermore, greater flexibility is generally available, in terms of both fund structure and the investment portfolio.

• Tax exempt status in the offshore jurisdiction enables the fund to reinvest the approximately 30% taxes on profits and gains that would otherwise be payable in high tax jurisdictions, without the need to obtain investment company or similar status. Therefore, taxes may be deferred until the investor receives a return on his investment. (Tax advice should be sought in the jurisdictions of the sponsor/manager and each investor to determine any potential tax liability.)

Leave a Reply

You must be logged in to post a comment.