| There has been a bit of a shakeup in the world of | | | | were deemed to hold non-material interests in |
| offshore investment in the UK. The regulations | | | | offshore funds may be unfairly subject to the |
| governing offshore investments needed updating, | | | | new regulations. The Government has made |
| and therefore the UK Government has proposed | | | | provisions for any non-material investments made |
| some amendments to current offshore funds | | | | before 1st December 2009 to ensure that this |
| regulations, the Offshore Funds (Tax) Regulations | | | | doesn't happen. |
| 2009, which came into force on the 22nd | | | | Distributing and Reporting |
| December 2009. These amendments will mean | | | | Distributing and non-distributing have been |
| big changes for some, and not a great deal for | | | | redefined as reporting and non-reporting, with |
| others. But what exactly are these changes? | | | | almost all current offshore funds defaulting to |
| Changes to Offshore Definition and 'Material | | | | non-reporting, with reporting status requiring |
| Interest' | | | | subsequent application. Reporting funds are |
| The new regulations have changed the definition | | | | required to report at least 90% of all reportable |
| of an offshore fund. Previously, the definition of | | | | income within 6 months of each period end to |
| offshore funds was tied to the regulatory | | | | investors and HMRC. Failure to report income will |
| definition of a 'collective investment scheme' under | | | | potentially lead to loss of reporting status. |
| FSMA 2000 rules. However, some offshore funds | | | | Reporting fund status is desirable because it |
| did not fulfil all of the FSMA requirements. This | | | | offers a higher degree of tax certainty and |
| meant that some funds were not classed | | | | increased ease of administration. |
| correctly, leading to advantageous tax situations | | | | Who is Affected? |
| for some investors where the fund just fell short | | | | All investors who were subject to tax deductions |
| of FSMA requirements. | | | | resulting from investments under the previous |
| In addition, in order to be taxed, investors must | | | | regulations will be affected by the new regulations. |
| have a 'material interest' in an offshore fund. The | | | | In addition, any investors in non-UK funds that |
| definition of a 'material interest' has always been | | | | were not previously subject to tax will now need |
| rather vague, leading to confusion and unequal | | | | to recheck their obligations, since the definition of |
| treatment of investors, and so the Government | | | | an offshore fund has changed and the 'material |
| has decided to scrap this. | | | | interest' rule has been abolished. |
| In place of the old classification system, the | | | | For tax purposes, all income tax for the tax year |
| Government has introduced a 'mutual fund' testing | | | | 2009/10 will be subject to the new regime. Capital |
| mechanism. Non-UK funds that are classed as | | | | gains tax will only be affected for any capital gains |
| 'mutual funds' under the new testing system are | | | | made on or after the 1st December 2009. |
| also defined as offshore funds if they are also | | | | Corporation tax on income will be affected for |
| classed as non-UK resident for tax calculation | | | | accounting periods that end on or after the 1st |
| purposes. | | | | December 2009. |
| It is clear, however, that previous investors that | | | | |