An offshore private equity fund set up in a tax-neutral jurisdiction such as the Cayman Islands or the British Virgin Islands won’t pay any tax at the Fund-level. However, ensuring preferential tax treatment for the carried interest accruing to the fund managers and the returns due to investors means that it is prudent to structure offshore funds on the basis of robust tax advice. To be specific, fund managers and investors are usually keen to ensure that all returns are treated as capital gains rather than income, in order to reduce any tax liability.

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