Tax Planning For U.S. Hedge and Equity Funds

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Funds typical structure is design as a master fund structure. This is the cornerstone to protect investors and create a classification for U.S., foreign and non-profit clients. The master fund will be divided into a U.S. Feeder Fund and a Foreign Feeder Fund. Within the same structure the investment manager is also a foreign entity.

There are many offshore jurisdictions such as Cayman, Bermuda or Bahamas that can be used as the base for the foreign feeder fund and the investment manager. Cayman is usually the location of choice for many reasons, including its proximity to the U.S. and its legislation in addition to be a first tier offshore center.

Hedge Funds and Private Equity deal with operational challenges in three key areas:

  • Minimize investor tax burden
  • Regulation compliance
  • Financial goals achievement

In addition to the operational challenges, hedge funds and private equity funds they both deal with internal structuring involving:

  • Investment partnership
  • General partner
  • Portfolio companies
  • Limited partners

The complexity of operational challenges and internal structuring result in the need for tax planning for:

  • Cash flow distributions
  • Valuation
  • Distribution
  • Diversification
  • Transfers

Finally with the Trump Tax Reform, fund managers should consider changes to the fund structure as the result of important tax changes:

  • Carried interest: if a partnership interest is sold before 3 years.
  • Itemized deduction: management fees are not tax deductible anymore until 2025.
  • 20% Business income deduction: fund partners are allowed 20% income deduction subject to W2 wages paid.
  • Business loss limitation: fund partners losses are limited to $250K if single, double if married. Any excess will be carried forward.
  • Controlling Foreign Corporation (CFC): income from CFC is taxable and should be included into partners personal tax return subpart F.

FAS CPA & Consultants is committed to help Hedge Funds and Private Equity Funds to plan for an efficient tax strategy. Our accounting and tax planning services are designed to minimize the tax liability, on-time filing and provide you with peace of mind.

Offshore Strategies

  • Offshore Companies

An offshore company is a legal entity incorporated in a country or jurisdiction with little or zero taxation. The benefits that an offshore company include zero corporate tax, flexible business laws, asset protection and confidentiality, protection from political and economic changes and the risks, associated with them. In order to maintain a tax exempt, the offshore company must not trade on the territory the country of incorporation.

  • Offshore Bank Account

An offshore bank account is a fundamental piece of your international diversification strategy. It’s especially important and helpful in present days when currency controls and government regulations are becoming even more intrusive, slowing down international business and transaction flow. An offshore bank account allows you to internationalize your business and to place part of your wealth outside of the country without risking freeze or confiscation of assets by the government.

  • Offshore Banking Licensing

Offshore banking brings many benefits and it is completely legal when done correctly. But more useful is to know what are the best jurisdictions you can get a license for a start-up offshore bank. 

Best Jurisdictions for Offshore Banking License

    • Dominica
    • Cayman
    • Lithuania, EU

Our Tax Planning For Hedge/Equity Funds Services Includes:

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Tax Return Filing Up to 3 Accounts K1s
Tax Consulting Via Email/Phone

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Tax Planning For Hedge/Equity Funds Platinum Package

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Tax Return Filing Up to 3 Accounts K1s
Tax Consulting Via Email/Phone

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