The Non Regulation of Hedge Funds in Offshores Jurisdictions: Cayman Islands, British Virgin Islands, Mauritius, and Delaware

Abstract

Hedge funds may be established anywhere in the world, both onshore and offshore. To shed more light on the offshore hedge fund industry, with main focus on the following offshores jurisdictions: Cayman Islands, British Virgin Islands, Mauritius, and Delaware, the current chapter focuses at first on the differences between onshore and offshore funds from the point of view of their legal structures, and particularly with regard to tax requirements. Indeed, there are plenty of benefits for hedge funds in moving offshore, the most important being for sure the tax neutrality, as these locations are known also under the name of “tax havens.” Also, there is a major focus on advantages and disadvantages of legal fund vehicles and structures which operate in offshore places. The current chapter analyzes only three regions of the world’s most important locations for offshore funds: the Caribbean, more precisely the Cayman Islands and the British Virgin Islands, United States, respectively Delaware, and Africa—Mauritius. The chapter provides an in‐depth analysis of the four jurisdictions from the point of view of hedge funds. Despite increasing convergence, meaningful differences between the four regimes can be observed. The chapter explores several of these similarities and differences, as well of advantages and disadvantages offered by each jurisdiction. The Cayman Islands is one of the largest financial centers globally speaking, as well as a key node in contemporary global finance, standing as the legal domicile of choice for the global hedge fund industry. Delaware is perceived as a de facto offshore financial center or as a “domestic tax haven” of the United States, performing similar to the Cayman Island, providing low levels of regulation and taxation, as well as a high degree of stability. Both UK and US hedge funds are attracted by the British Virgin Islands, mainly because this country is historically tied to the United Kingdom and geographically to the United States. The British Virgin Islands stands as one of the best, highly respected hedge funds’ domiciles, globally speaking. In addition to its modern, efficient banking system stands the government’s public policies focused mainly on developing strict money laundering and tax evasion standards, this earning for the British Virgin Islands a leading reputation in the financial world. Last but not least, Mauritius is the favorite offshore center for Far East investing.