Moving Investment Operations to Puerto Rico: Tax Benefits for Hedge Fund and Private Equity Managers

摘要

This article focuses on recently enacted Puerto Rican legislation and its implications for U.S.-based hedge fund and private equity managers, who otherwise face very high taxes on their offshore carried interest, which up till now had enjoyed favorable rates and tax deferral. The addition of Section 457A to the tax code has effectively ended a long era of deferred tax recognition of carried interest in investment managers' offshore funds. But with careful planning, a combination of an F reorganization and a move to a tropical island could help such fund managers find a new tax paradise.