One advantage is that the fund and its investors are not subject to United States taxation. Another advantage is that since the number of accounts in a U.S. hedge fund is limited, offshore funds are a way to raise additional capital from non-U.S. investors.
Offshore Hedge Funds are not registered in the United States or with the SEC, and therefore offer privacy benefits as well as tax advantages.
A lucrative reason for being offshore is that gains are either untaxed or very lightly taxed in the country where they were originated. With respect to the tax implications for the hedge fund manager, the manager may want the offshore fund to allow deferral of management and incentive fees. This will allow the manager to defer his or her fees for a specified period and allow them to accrue with the fund on a tax-deferred basis.