Hedge Fund

The Cayman Islands is the jurisdiction of choice for the establishment of offshore funds. Approximately 85% of the world’s hedge funds are domiciled in the Cayman Islands outranking the competing jurisdictions of BVI, Bermuda and Jersey. The Cayman Islands has three times as many Funds as the second most popular offshore jurisdiction for funds, the BVI.

The Cayman Islands are attractive to hedge fund promoters for many reasons, some of which are listed below:

Advantages of establishing a Hedge Fund in the Cayman Islands:

  • The Cayman Islands is a stable jurisdiction with a legal system based on common law.
  • Speed to market – Funds can be established and registered quickly in the Cayman Islands.
  • Cayman Islands does not impose material conditions on the terms of securities offerings by open-ended funds to non-retail investors.
  • No requirement to have Cayman based directors or officers, managers, administrators or custodians.
  • No limit to the asset classes which a fund can acquire or the leverage it may employ.
  • Highly professional service providers, lawyers, accountants etc. are located in the Cayman Islands.
  • Generally there is no Cayman tax applicable to the establishment and operation of funds – there are no corporate gains, income or withholding taxes if any nature.
  • Cayman has full membership of IOSCO and has been commended by the IMF for having strong compliance with regards to anti-money laundering.
  • As from August 2009 Cayman is on the OECD’s whitelist of countries complying with the global standard for tax cooperation and exchange of information.

Establishing a Cayman Island Hedge Fund:

The Mutual Funds Law (2003 Revision) (the Cayman MFL) regulates all mutual funds established in, or operating from, the Cayman Islands.

Hedge funds established in the Cayman Islands will typically take the form of either a company, a limited partnership (the most common form) or a unit trust. In practice most registered funds are set up as exempted companies limited by shares as this is the simplest vehicle to establish and administer.

Below is a brief description of the establishment of a standalone Cayman Islands Hedge Fund (see Appendix 1 for summary). Assumptions are made that the Fund will not be set up as a retail fund or a close ended fund but will offer redeemable equity securities to investors in minimum subscriptions of USD 100,000 or more.

Appendix 1 – Fund Establishment Flowchart

 

Stage 1 – Commercial Structuring:
During this stage there are a number of factors which need to be considered (see Appendix 1) in addition to selection of an investment management vehicle. Whilst there is no need for this entity to be a Cayman Company these are normally used in order to qualify for annual exemption.

Stage 2 – Prepare draft documents:
A draft offering document is prepared describing the shares in all material respects and containing information as necessary to enable a prospective investor in the Fund to make an informed decision.

Draft constitutional documents enshrining share rights and subscription agreements governing the terms on which investors will subscribe for shares and containing subscriber eligibility representations and anti-money laundering KYC requirements are also be prepared.

Stage 3 – Incorporation:
The fund can be established at this stage and the tax exemption certificate can be applied for. The tax exemption certificate guarantees exemption from all Cayman taxes for 20 or 30 years irrespective of any subsequent change in the Law.

Stage 4 – Functionaries:
The Fund will need to negotiate terms with and appoint key functionaries. The Fund will ordinarily require at least two directors who will be responsible for the supervision of the fund. For day to day management an investment manager should be appointed.

There is no requirement for directors to be Cayman residents and often officers of the investment manager will act as directors. Independent directors can be appointed.

An Administrator is required to be located in Cayman or another jurisdiction approved by the CIMA (Cayman Islands Monetary Authority) as having an equivalent anti-money laundering KYC regime. The Administrator will be responsible for calculation of the net asset value of the Fund, the processing of subscriptions and redemptions and the compliance with AML requirements applicable to the Fund’s Investors.

The Fund will also be required to appoint one or more independent Custodians and an auditor approved by CIMA to prepare and file accounts and submit other financial and operating information in respect of the Fund to CIMA.

Stage 5 & 6 – Finalise documentation and agree operational guidelines:
During these stages commercial terms will need to be agreed and documents finalised and executed with functionaries in addition to the operating procedures of the functionaries being confirmed.

Stage 7 – CIMB Filing:
The offering and constitutional documents are finalised and approved and the documents required to establish the Fund are filed with CIMA. The CIMA does not normally raise any issues on the documents filed for a Registered Fund and will normally issue a fund registration within 7 working days. From this point the Fund may begin accepting subscriptions from Investors as a registered Cayman Fund.

Fees:

The total costs for setting up a Cayman Islands Hedge Fund will include the following:

  • The incorporation costs of the vehicle required – see below
  • The on-going annual fee – see below
  • The annual administrators fee – variable
  • The annual auditors fee – variable
  • The initial registration fee of the fund with CIMA and annual fee to maintain the funds registration – see below
  • Legal fees – variable

Fees – Cayman Island Exempt Company:

DescriptionFee (USD)
Incorporation of a Cayman Islands Exempt Company

 

  • Registration
  • Government Fees
  • Registered Office Fee
  • Registered Agent Fee
4,225.00 USD
Renewal Fees:

 

  • Government Fees – must be paid on 1st Jan each year
  • Registered Office & Registered Agent Fees – payable on date of incorporation the following year
732.00 USD
1,500.00 USD

Fees – Cayman Islands Limited Liability Partnership:

DescriptionFee (USD)
Incorporation of a Cayman Islands Exempt Company

 

  • Registration
  • Government Fees
  • Registered Office Fee
  • Registered Agent Fee
  • Courier Fee
5,150.00 USD
Renewal Fees:

 

  • Government Fees – must be paid on 1st Jan each year
  • Registered Office & Registered Agent Fees – payable on date of incorporation the following year
1,220.00 USD
1,625.00 USD

Additional Fees:

  • CIMA Fee for initial and annual registration – 3,700.00 USD
  • Tax Exemption Certificate (optional) – this proves that the management company will be exempt from taxes in the Cayman Islands – Approx. 2,500.00 USD
  • Professional service fees – will be quoted for on an individual basis. Fees range from 20,000 – 25,000 USD.

Appendix 2 – General Summary of Characteristics of a Cayman Islands Fund

Regulatory Authority
  • Cayman Islands Monetary Authority
Type of Vehicle
  • Company (exempted companies), unit trust, limited partnership
Type of Fund
  • Open or close ended funds or a combination of the two
  • Close ended funds are unregulated
Licensing / registration requirements
  • Non-retail open ended funds registered with CIMB
  • Retail funds must either be licensed or employ licensed administrator
  • Prospectus required on registration / licensing of funds
Companies Registry
  • Annual filing and Annual fees required
  • Limited information available publically
Financial Statements
  • Audited financial statements to be filed with CIMA and signed off by local auditor
Directors
  • No residential requirement
  • Corporate Directors acceptable
  • CIMA require a minimum of 2 directors for registered funds
Shareholders Meetings
  • No requirement for annual meeting
Managers
  • No licensing requirements if Securities Investment Business Law exemption applies
  • Simple annual registration & filing would then be required
Investment restrictions
  • None
By Laws / Constitutional Documents
  • M&AA
  • May be amended by shareholders
Transfer of Shares
  • Unrestricted (unless otherwise stated in M&AA)
Currency
  • Multi-currency funds permitted
Administrator
  • No requirement for local administrator
  • Cayman administrators licensed under Mutual Funds Law
Custodian
  • No Custodian requirements
Investment Advisor
  • No licensing requirements if Securities Investment Business Law Applied

     

  • Simple annual registration and filing would be required
Set up time
  • Company incorporation – 1-2 working days
  • Registration with CIMA – 4-7 working days
Taxation
  • No income, capital gains or corporation tax
  • Government undertaking that no taxation will be levied on the income or property of the fund for 20 years.
Segregated Portfolio / Protected Cell Companies
  • Permitted under the Companies Law
Statutory Merger Provisions
  • None

Take the next step, we are here to help.

Register a Cayman Islands company.
Open a Cayman Islands bank account.

  Resources:

Cyprus Regulatory Update: Shell Company Definition & Exceptions

Cyprus Regulatory Update: Shell Company Definition & Exceptions

The Central Bank of Cyprus has released new guidance for all credit institutions on the island, refining the definition for shell companies and subsidiary entities; coming into effect from November 2018, which are detailed as follows:

Singapore Variable Capital Company VCC: New Features & Benefits

Singapore Variable Capital Company VCC: New Features & Benefits

The introduction of the VCC is a significant positive for the Singapore funds industry. Its aim is to retain Singapore as an attractive business destination and to keep investors wishing to domicile locally.

Consolidated Accounts for Hong Kong Companies: Subsidiary Requirements

Consolidated Accounts for Hong Kong Companies: Subsidiary Requirements

As per Hong Kong company’s ordinance subdivision 3 section 379 subsection 1, a Company Director will have to prepare year-end financial accounts that comply with sections 380 and 383.

Challenges of Our Time: Cryptocurrencies & Their Regulation

Challenges of Our Time: Cryptocurrencies & Their Regulation

The very concept of cryptocurrencies derives from technologies and the creation of alternatives to existing payment systems, which for the most part is caused by the negative consequences of financial crises and the injustice within the sphere of financial and legal regulation. Many people are convinced that the cryptocurrency is likely to become an alternative to the established global financial system and open new opportunities to those segments of the population and citizens of those countries that are deprived of the opportunity to work with the banking financial system.

The Tax System in Poland: Benefits & Overview

The Tax System in Poland: Benefits & Overview

The tax system in Poland is one of the most loyal for both large and small businesses in the country. There are two levels in the system that relate not only to residents of Poland, but also to foreigners. The Polish tax system consists of administrative taxes (duties are paid directly to state bodies) and local taxes (the process is similar to the previous type). Therefore, Poland is one of the European countries with a stable economic position, whose attractive system attracts citizens from neighbouring countries to conduct business within the country. It is the Polish taxation system that is advantageous for businessmen willing to enter the international market.

The reasons of abolition of the Company Secretary in UK Private Companies

The reasons of abolition of the Company Secretary in UK Private Companies

The role of Corporate Secretary can be a position in a private sector company or within the public sector organisation. In large, publicly-listed corporations, a Company Secretary is typically named a Corporate Secretary or just a Secretary. The Company Secretary is responsible for the efficient administration of a company, particularly with regards to ensuring compliance with statutory and regulatory requirements and also for ensuring that decisions of the board of directors are implemented.

The Dematerialisation of Shares in the UK: Current Update & Assessment

The Dematerialisation of Shares in the UK: Current Update & Assessment

Business is an area that is continuously developing. An integral part of both business and economics are companies. It is possible to say that companies dictate the conditions of the market to a certain extent. Any public or private company has its own shares; a share is a security that provides a portion of ownership of the company and gives the holder the right to a part of the profits.

Current Information on the Payment of Cyprus Taxes for Pensions & Rental Income

Current Information on the Payment of Cyprus Taxes for Pensions & Rental Income

Cyprus employees who are considered to have tax resident status, pay tax on their global income. Employees not considered to be tax resident are only charged for specific types of income that are originating from Cyprus-based sources.