Question: If I set up an investment fund which buys securities traded on US markets in a foreign country, can it avoid SEC regulation and US taxes? Does it matter if some of the investors are in the US? Do I have to disclose fees?
Answer: As an initial matter, if you are planning to set up any sort of fund, particularly using an offshore structure, you need to engage an attorney with experience in securities, corporate, and tax law, as this type of matter would require significant competency in each of those areas of law. Do not attempt to use templates, or even to use an attorney who is not experienced in setting up a funds, particularly based on the complexities you’ve described.
If you mean all types of regulation, the answer is clearly no, as you are investing in US property, seeking investments within the US and to US citizens, and will likely be subject to some sort of regulation on a state, federal level, and international level, which likely includes taxing authorities, securities agencies, and other regulatory bodies. Depending on how your fund is organized and its specific activities and other circumstances, you may be able to use an offshore structure to avoid some regulation, but based upon the facts you have described, it will be very unlikely to avoid all regulation.
Offshore structures often provide benefits which may include less regulation, however, these structures are more related to complex tax strategies, including the use of offshore corporate entities to accommodate investment by foreign persons and tax-exempt entities. Careful tax planning is required to effectively structure funds with offshore entities, which needs to be done by a competent tax attorney. To use the most efficient tax structure for your fund, it would require much more detail and may involve sophisticated tax planning, depending on your specific circumstances and planned activities.
There are a number of different foreign jurisdictions which may be used in fund structuring, with each country having its own particulars and requirements in entity formation and compliance with local laws. Make sure that your attorney has experience in dealing with these foreign jurisdictions and/or that a local professional in the foreign country is retained.
Typically, fees would need to be disclosed, particularly with respect to funds subject to US regulation, but the particulars of the fund would need to be know to give you an idea of what the fee disclosure requirements would be. Make sure that an attorney with specific experience in securities regulations advises on your disclosure requirements, and also on any registration requirements or exemptions from securities regulation that may be used.
I cannot reiterate enough that you need to engage at least one attorney with competence in setting up funds with the types of complexities specific to your fund. In addition, you will need to engage the services of qualified CPA, as your fund may have fairly complex tax reporting requirements. You need significant advice from these professionals to organize and operate this type of fund, and also to ensure that you do not expose yourself to a litany of different types of liabilities, which can be quite significant and include both potential criminal and civil liability. Due to the required specialization and liability in rendering these types of legal services, the legal fees for this matter may be significant and can vary quite a bit depending on the specific structure that is used. However, getting the proper legal advice here may save you significant amounts in taxes, and greatly reduce the liabilities associated with operating of an investment fund. Most attorneys will give you a free consultation to discuss these types of legal services, and I suggest that you contact an attorney willing to do so before proceeding any further.