3.5 Most popular domiciles

Domicile The choice of domicile is relevant primarily for mixed capital SIFs anchored by nongovernment entities, whose choice may be influenced by a broad range of factors. Although a sponsor may have its primary operations in a home country, it may select another jurisdiction as the legal domicile for the fund. The choice of an offshore jurisdiction is driven by multiple considerations, such as the availability of a robust regulatory regime, the level of regulatory oversight desired by the fund and its investors, confidence in the rule of law, tax efficiency and neutrality, and the availability of appropriate investment instruments not existent in the host country. Reputable offshore domiciles typically also have a deep and experienced pool of service providers, including fund administrators, lawyers, accountants and auditors, and professional directors (RBC Investor & Treasury Services 2018) (see box 3.5). Despite those advantages, domiciling abroad requires acquiring familiarity with a new regime, hiring local expert advisers, and possibly incurring higher registration costs than in the SIF’s home country. The choice of offshore domicile is most often exercised by mixed capital SIFs, which must consider the attractiveness of the domicile’s legal framework for both the SIF sponsor and outside investors, and therefore often gravitate toward reputable fund jurisdictions.

For responsible investors, transparency is one of the key criteria of reputed jurisdictions. Transparency supports the fight against aggressive tax avoidance, tax evasion, corruption, money laundering, and other illicit financial flows.

BOX 3.5

Most popular domiciles

A number of well-established jurisdictions have been leading the race to attract funds. Historically, the most popular domiciles for alternative investment funds have generally been the Cayman Islands, the state of Delaware in the united States, Luxembourg, malta, Ireland, Jersey, guernsey, the Isle of man, the British virgin Islands, Bermuda, and mauritius.

Fund sponsors often have regional preferences for domiciliation. European fund sponsors, for example, often domicile in Luxembourg. Sponsors from English-speaking countries are more likely to domicile in Ireland, in one of the Channel Islands jurisdictions, or in the united Kingdom. uS fund sponsors are most likely to choose Delaware, the British virgin Islands, or the Cayman Islands; and African and Asian sponsors more often domicile in mauritius and the Cayman Islands.

Note that, from both an AmL/CFT (Anti-money Laundering / Combating the Financing of Terrorism) and a tax angle, there are concerns that low tax jurisdictions or offshore centers are less transparent and, at times, less effective in providing relevant information—often specifically related to beneficial ownership information for legal entities incorporated under the laws of those jurisdictions. Some jurisdictions—such as Barbados, the Cayman Islands, malta, and Panama—are currently on the Financial Action Task Force grey list, whereby the country has agreed to rectify certain AmL/CFT deficiencies within a specific timeline.a These concerns may also be taken into account when deciding where to locate a strategic investment fund. As members of the global Forum on Transparency and Exchange of Information for Tax Purposes, all these jurisdictions have committed to implement the international standards on tax transparency, including fighting the misuse of opaque structures that might conceal beneficial ownership.

Sources: Clarkson, Jaecklin, and Kaczmarski 2014; World Bank. a. For more information, see the Financial Action Task Force list of jurisdictions under increased monitoring (https://www.fatf-gafi.org /publications/high-risk-and-other-monitored-jurisdictions/documents/increased-monitoring-march-2022.html).