The Cayman Islands is one of the more popular jurisdictions in which fund managers establish their investment operations mainly because it’s a tax haven. Although located in the Caribbean, it was reported in 2017 that it is the domicile to about 85% of the world’s hedge funds.
Moreover, it was also noted that around 70% of the nearly 11,000 investment funds registered in the jurisdiction, are being managed by American asset or wealth managers; while about a third are under the administration of the U.S. government. Today Cayman Islands has emerged as one of the most popular and successful offshore territories for investments funds and other corporate business. ventures.
The term hedge funds are often mentioned in high-yielding investment circles. Yet those new to investing can have a better appreciation of Cayman Islands role in the financial market industry, by first understanding what hedge funds are. how they work and what makes them different from mutual funds.
What are Hedge Funds and What Role Do They Play in the Financial Market
A reference to hedge fund basically denotes funds raised and pooled by a group of people for high-yield investment purposes. Here, the founders provide the seed money using their own funds. After which, they divide the profits between themselves based on the proportion of the sum of money invested in the hedge fund.
Hedge fund firms eventually invite people looking to invest their idle money, so they can take part in the investing and profit-sharing activities of the hedge fund group, In doings so, the founding members of the hedge fund group earn additionally, by collecting commissions from the earnings gained by non-founding participants,
The investing activities of hedge fund firms are broad in scope and are limited only by the mandates of its own by-laws. This denotes that hedge funds can be invested in almost everything where high yields can be generated, from stocks, to bonds, real estate, derivatives and currencies including cryptocurrencies.
Although similar to how mutual funds work, MFs are different because from the very start, the money pooled for investment purposes are mostly hard-earned contributions of middle-class individuals. The pooled funds generate higher yield when compared to those traditionally offered by banks.
To ensure that MFs have low risk exposure, fund managers maintain and manage a portfolio of investments comprising only shares of stocks, bonds and in some cases, short-term lending. Readers looking to find more information on what mutual funds registered in the Cayman Island, should have a read of the Einvestment mutual fund and its investing platform,
Now here;s the thing, while normally, the profits earned from investments are met with high tax rates in regular jurisdictions like the US, hedge funds amd mutual funds registered in the Cayman Island are met with lower tax rates, simply because the jurisdiction is a pre-eminent tax haven.
Understanding the the Higher Earning Opportunities in a Tax Haven
A tax haven is essentially a jurisdiction, which by the virtue of its self-governance, impose very low taxes, or even no tax at all. on what governments of other countries consider as taxable income, or profits from financial transactions.
The reason why this Caribbean territory is quite popular among investment fund managers and various multinational business organizations, is the fact that it does not impose a corporate tax. Even Cayman Island residents benefit from the tax haven status, as they are not required to pay income tax, and therefor no withholding and payroll taxes, or pay tax on capital gains and on real estate properties.
As means of earning government revenues, fees are collected from work permits, stay-over tourism and on various financial transactions. Additional revenues come from import duties levied on luxury goods and other imported items, except on baby formulas.