What is an unregistered mutual fund

Fondsdomizil - Lexicon from FondsClever.de

The fund domicile is the country in which an investment fund was launched. For the capital investor, the fund domicile can play an important role in many ways. Because the investment fund is subject to the laws and taxation of the country in which it is based. The national supervisory authorities in the fund domicile are also responsible for controlling the fund management.

Difference between onshore funds and offshore funds

In connection with the fund domicile, B rsianer investment funds differentiate between "onshore funds" (English, translated: onshore funds or funds on the mainland) and "offshore funds" (English, in German: fund or funds away from the coast beyond the coast), whereby the actual geographical location of the fund domicile is of secondary importance. So-called onshore funds are investment funds that are based in a country with extensive legislation with regard to effective investor protection. The offshore funds, on the other hand, include those funds that are set up in countries with more liberal laws and regulations for the investment business. Often these fund domiciles also offer tax advantages for capital investments.

Under both categories there are fund domiciles that have established themselves as popular locations. In terms of volume, Luxembourg ranks top among onshore funds in Europe as a fund domicile. In addition to the central location, political stability and constant legal security speak in favor of this location. On the other hand, Luxembourg also grants economic and financial actors greater room for maneuver and tax advantages. Preferred fund domiciles for offshore funds are Caribbean islands such as the British Virgin Islands and Cayman Islands, Hong Kong, Taiwan, Panama, the Isle of Man, Jersey or Liechtenstein and the Netherlands.

Taxation depending on the fund domicile

For German investors, it is important that different regulations apply to the taxation of investment funds in Germany, depending on the fund domicile. First of all, the tax authorities in this country differentiate between approved German funds and foreign funds, which in turn are divided into three classes:

  1. Registered investment funds with a foreign fund domicile, which are allowed to offer their fund units publicly in Germany. For this, the requirements of the German legislature must be met.
  2. Non-registered foreign funds with financial representatives who do not meet the German registration criteria and are therefore not allowed to offer their shares publicly in the Federal Republic of Germany.
  3. All other funds domiciled abroad, whose units are also not allowed to be offered to the public in Germany.

In terms of taxation, the registered foreign funds are almost on an equal footing with the German investment funds. Deviations only apply in very few cases if there are special prerequisites. German investors have to be prepared for tax disadvantages compared to these fund groups if they want to invest in non-registered foreign funds.

Avoid double taxation if the fund is domiciled abroad

Furthermore, in the case of investment funds with a foreign fund domicile, it should be noted that investors avoid the possible double taxation of foreign dividends. Most countries levy a withholding tax when payments of returns leave their country. For example, a German investor receives the remaining amount after deducting the withholding tax in the country of domicile, whereby the custodian bank in Germany now pays 25 percent withholding tax directly to the tax authorities. Thanks to the double taxation agreements that the Federal Republic of Germany has with many countries, investors can offset a fixed percentage of the foreign tax against the tax payable in Germany. It should be noted, however, that some countries deduct more than the German tax authorities credit. Even then, there are other measures that can be taken to reclaim taxes that have been overpaid from the country of domicile. That is why it makes sense to consult a tax advisor in such cases.