Your master fund and feeder funds will benefit from the creation of a tax plan including an exempt offshore fund to protect foreign investors.
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.
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 the sale is taxable at regular tax rates.
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.
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