Carried interest can be capital-like or income-like depending on where the fund lives, who makes decisions, and how the documents read.
What is carry really? An allocation of profits to the GP team for performance. Jurisdictions diverge: some treat carry as capital gains; others as employment or other income. The delta can be life-changing.
Where the fund “lives.” Fund residency, GP location, and portfolio oversight drive outcomes. If investment committee and portfolio monitoring occur in a hub, expect local nexus.
Documents that matter. LPA, GP agreements, side letters, and clawback terms influence characterization. Tie vesting to performance rather than service where capital treatment is sought (verify local rules).
Team mobility. Senior partners relocating mid-fund need split-year analyses and treaty tie-breakers. Keep travel logs and meeting minutes consistent.
Downstream blockers. Use holding structures that qualify for WHT relief on dividends and exits; align DEMPE for any IP-driven strategies.
Mistakes. Paying “carry” via salary routes; missing contemporaneous valuation memos; or holding the GP in a zero-substance entity.
Case snapshot. A GP moving to the UAE re-papers the GP entity, relocates IC meetings, and sets a governance calendar to defend nexus. Parallel planning updates bank KYC and investor notices.
FAQ
- Can I keep the GP in one country and live in another? Yes, but facts must show where decisions and control lie.
- Is deferred carry safer? Only if documents and economics align.
Editor’s Note: Carry planning is fund design, not a year-end tweak.
Tags: Carried Interest, Private Funds, GP/LP, Mobility