Client Services

Offshore Exempt Funds

WiltonGroup has built up a high level of expertise in the creation of Offshore Exempt Funds. These are highly efficient vehicles from a tax position and also have a minimum regulatory hurdles so can be provided at a manageable price. The main characteristics are:

i) Limited to 49 members,
ii) No requirement for a prospectus or offering document,
iii) Zero percent tax,
iv) No withholding tax.

The Exempt Scheme provides a formal structure through which a relatively small group of like-minded individuals or family members can invest in a range of asset classes anywhere in the world. There is no minimum subscription, no net worth criteria nor a requirement for only “experienced” investors. The Exempt Scheme therefore has many advantages over the more specialist regulated fund types. These are detailed below for your ease of reference.

Flexibility of legal form

It is possible to establish an Exempt Scheme as

1. General Partnership.
2. Limited Liability Partnership (LP)

1. Private (Ltd)
2. Public (Plc)
3. Protected Cell Company (PCC)
4. Limited Liability Company (LLC)

3. A Unit Trust

Regulatory status

Funds in the Isle of Man are subject to varying degrees of regulation, dependent on which category they fall into. Regulatory requirements may include the need to appoint appropriately licensed functionaries (such as an administrator, custodian and/or auditor) and stipulations regarding the preparation and content of an offering document, investor certification obligations, minimum subscription levels, etc. Exempt schemes are subject to the lowest level of regulation, and are not required to fulfill the above criteria.

Criteria for exemption

Exempt Funds must satisfy two criteria. The first relates to the means of distribution; the second relates to the diversity of the investor base. The criteria are as follows:

1. Interests in the exempt scheme may not be offered (either by or on behalf of the fund or any investor) to the public or any section of it (in other words the fund may only be offered on a private “friends and family” basis). A prohibition to this effect must be included in the constitutional documents of the fund;

and;

2. The exempt scheme must have fewer than 50 investors at all times.

As an exempt scheme grows it may become appropriate to make arrangements for public offerings or to exceed the investor limit. Where this becomes necessary then it is a straightforward process to convert an exempt scheme into one of the other available schemes on the Island. This would include the Specialist Fund and the Qualifying Fund.

Administration requirements

Although there is no requirement for an exempt scheme to appoint a regulated fund administrator, the use of an Isle of Man fund vehicle will require an Isle of Man fiduciary services provider to deliver certain regulated services in connection with the set up, ongoing administration and the provision of directors, secretary and registered agent/address.

Asset management

As an unregulated vehicle, there are no restrictions on asset classes, trading strategies or leverage for an exempt scheme. This makes the exempt scheme a suitable vehicle for any type of investment fund ranging from traditional, long-only equity funds to hedge fund strategies and from private equity to property investment.

An exempt scheme can obtain investment advice from any source.

Governance and board composition

There are no prescriptive requirements regarding the composition of the board of directors of an exempt scheme.

No regulatory pre-approvals or fees

There is no requirement for any pre approval to be sought from the FSC or any other body to launch an exempt scheme. There are no initial or ongoing fees relating to the establishment or operation of an exempt scheme, although an annual corporate charge (currently £320 for a company and £75 for a limited partnership) is payable in relation to the use of an Isle of Man corporate vehicle.

Investors

Interests in an exempt scheme may not be offered to the public. Therefore investment may only be accepted on a private basis from “friends and family’.

An exempt scheme is also subject to a limit on investor numbers. The fund cannot accept more than 49 investors and artificial arrangements for evading this limit are not effective.

No minimum subscription

As an unregulated vehicle, there is no prescribed regulatory minimum initial investment requirement for an exempt scheme.

Taxation

The Isle of Man offers a tax neutral environment for fund operations. There are no capital taxes and the Island has a zero rate of corporate tax for most non resident taxpayers. This means that a corporate fund vehicle will benefit from a zero rate of income tax, as will any fund management or administration business based in the Isle of Man.

Some fees levied by local professional firms in respect of services to exempt schemes will be subject to value added tax in the Isle of Man.

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